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PLATTS RESPONSE TO PUBLIC CONSULTATION BY THE IOSCO TECHNICAL COMMITTEE ON FUNCTIONING AND OVERSIGHT OF OIL PRICE REPORTING AGENCIES

Introduction The history of price discovery in the oil markets has been characterized by an escalating demand for greater transparency, speed and precision of information delivery. With more than a century of experience, Platts has been in step with those market demands as an innovator in methodology and technology alike. Not that long ago, oil trading took place bilaterally behind closed doors. In the oil markets of the 1970s and 1980s, virtually every cargo bought and sold was termed “P&C” — private and confidential. A veil of secrecy shrouded the market; terms of trade were complex and highly variable; and those most exploited were those least able to afford it. This was non-transparency at its core. A major focus for Platts in the past 20 years and, indeed over its entire history, has been to use its reporting and analytical methods to shine light onto “dark markets.” Starting in Asia and extending westwards, Platts began challenging the opacity of the market. As early as 1923, Platts met the clamor for more frequent updates on fluctuating prices with the launch of the first daily publication to cover the oil markets — a two-page newsletter devoted entirely to reporting prices and market information. As the spot market opened up in the early 1980s, Platts stepped up again with the launch of its first real-time market information service in 1984 — Platts Global Alert — delivered via satellite. In 1992 Platts formally launched its market-on-close (MOC) methodology to bring rigor and transparency to price discovery in Asia, and to recognize in its price assessment processes the remarkable increase in volatility that has characterized the oil markets over the last 15 years. Platts has since introduced this approach to pricing in all oil markets globally, providing consistency of methodology and transparency to the marketplace. Moreover, Platts has been quick to recognize the profound impact of electronic commerce on the shape of the marketplace. The speed of communications within this marketplace has increased, as has the speed with which information travels across markets. In recent years, Platts has used electronic technology to adapt to the new pace of the markets. The increased number of participants in the Platts assessment processes, the ever rising speed and volatility of market activity, and the importance of delivering information to the market in real time has highlighted to Platts the need for improved tools to assist our communication and engagement with the market. In response, Platts introduced eWindow which enables traders to convey their intentions to buy or sell specific commodities directly to both the marketplace and Platts editors simultaneously, with Platts ensuring that the information meets its editorial standards. This further enhances the value and integrity of the price reporting.

The IOSCO Consultation Report Platts welcomes the opportunity to comment on the many questions raised in the report and to consider ways we can enhance market transparency and our own activities. Platts believes that any objective analysis will show that price reporting has continuously improved; that it generally works effectively; and that it balances the competing interests of the market. A thoughtful consideration of the questions raised in the IOSCO consultation report requires a full understanding of the role that Platts (and other price reporting organizations) plays in global oil markets. In Platts’ view, the nature and limits of that role are not fully apparent from a reading of the report. In that regard, Platts offers several key points to consider to properly frame the IOSCO review:

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• Platts is a publisher that observes and analyzes markets through the exercise of transparent and

robust methodologies in the collection and analysis of appropriate data. In this role, Platts does not control markets, lead them or determine market behavior. Moreover, there is no governance regime that mandates the use of Platts’ prices, including as the basis for physical transactions. Use of Platts’ prices for this purpose is at the sole discretion of the buyer and seller and is based on market confidence developed over many years.

• Physical oil markets are extremely complex and most transactions are non-standardized. Given the

complexities of comparing different attributes of a commodity, one of the main benefits Platts confers on the marketplace is the establishment of standards that allow participants to make comparisons. These standards evolve over time and are presented in a series of heterogeneous transactions. When the standards change, it can create stress for market participants, some of whom in response can and do switch to assessments from other publishers. In this regard, no benchmark is fixed or permanent. Methodology needs to adapt to changes in market conditions and other factors if the publisher wishes its benchmarks to remain relevant over time.

• Publishers must have full control over the methodology and criteria they use to determine their

price assessments. Under no circumstances should any government authority or regulator have jurisdiction over the substance of that methodology or criteria. The ability to develop and evolve sound methodologies to serve the market’s need for price information that is truly representative of market value depends on expertise, experience and, most importantly, unquestioned independence to ensure that no bias is created in favor of any market constituency.

• Market participants’ willingness to use a publisher’s price assessment as the basis for a transaction

largely depends on whether the assessment is believed to yield representative market value. In this regard, it is essential that the publisher of the assessment be perceived as credible, trustworthy and impartial. The publisher must have no interest or stake in the price of a commodity. As a result, an oversight regime comprised of industry participants — who often have commercial interests in the market — is antithetical to the need for independence in evaluating methodology and related editorial considerations.

• Transparency in price discovery is of paramount importance as it brings better understanding of

the price assessment and the drivers underpinning price, particularly given the complexity and non-standardized nature of physical markets. Platts’ market-on-close methodology is fully disclosed to the public, as are the transactions, including bids and offers, underlying Platts’ oil price assessments. This brings transparency to the opaque world of bilateral trading in the physical oil markets on which Platts reports, which enables market participants to engage in activities in a more orderly fashion and contributes to efficiencies in those markets. In short, Platts has played a vital role in providing market transparency.

• The quality and representative nature of data inputs is of greatest importance in determining a price

assessment that is representative of true market value, not the quantity. This fundamental point has been lost in the recent dialogue — including a discussion in this report — about illiquid markets and their impact on price reporting. Platts looks forward to engaging with the regulatory community and others to demonstrate that its price assessments are not susceptible to manipulation, including in illiquid markets, due to the unique qualities of its market-on-close methodology.

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• The market benefits from a diversity of choice among price assessment publishers and diverse methodologies. Any proposal that reduces choice or competition would not serve the interests of the marketplace, and would reduce the incentive to evolve and adapt methodologies to ever changing market conditions.

• Imposition of government oversight, mandatory price reporting and other regulatory action runs

the risk of unintended consequences; namely, a retreat from participation in price discovery and reduced market transparency in existing benchmarks, which would be incompatible with IOSCO’s goals and detrimental to the effective functioning of the oil markets. Moreover, recognition needs to be given to the global nature of oil markets and the fact that price benchmarks reflect a clash of market forces on a broad scale, where there is no special dispensation in favor of producers or consumers, developed or developing economies and that price is the primary driver of arbitrage and the needed determinant preventing surpluses or shortages. Any intervention in price formation that leads to prices that are not reflective of market value can adversely impact the functioning of global oil markets.

Overview of Platts Platts publishes news, fundamental data, pricing information and other analysis across many commodity markets, including oil, natural gas, electricity, emissions, petrochemicals, coal, metals, iron ore and steel, nuclear and shipping. Platts is best known as a publisher that covers energy markets, and especially as a publisher of price assessments relating to crude oil and refined products. Platts' products and services include real-time news and market alerts, price assessments and indices, newsletters and reports, maps, conferences and events. Platts is headquartered in New York and conducts business through major regional offices in Houston, London and Singapore and a global network of local offices in Argentina, China, Japan, Mexico, Russia, the United Arab Emirates, the United Kingdom and the United States. It is a division of The McGraw-Hill Companies, Inc., (“McGraw-Hill”) a global information services provider, headquartered in New York and listed on the New York Stock Exchange. As noted above, Platts receives the vast majority of its revenues from subscriptions to its information products. Platts subscribers include both buyers and sellers of the commodities that it covers (with many participants active on both the buy- and the sell-side), as well as a range of other interested parties such as energy producers and distributors, project developers, consultants, law firms, engineering firms, downstream users, governments, regulators and market analysts. Platts publishes assessments of spot prices for crude oil and refined products in various geographic regions, based on a range of factual inputs including information on individual transactions supplied by market participants. In simplest terms, Platts reports on the details of market activity and assesses the prices of the crude oil and oil products in question. Actual price levels and behaviour are driven by supply and demand fundamentals. Platts’ assessment methodologies, guidelines and administration of its assessment activities are designed with a single goal in mind — to ensure the integrity and transparency of its price assessment processes. Platts’ methodologies are freely available to the public and Platts makes great effort to be open and transparent with market participants as it adapts its methodologies to be fully in step with market dynamics and practices. Platts recognizes that there can be different methodological approaches to discovering price, and believes it is very important for the marketplace to have access to a diversity of

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price discovery methods. Platts believes regulators should support both competition and diversity among publishers in order to assure both choice and quality of price information available to the marketplace. Platts’ role in price assessment is editorial in nature based on journalistic and analytical processes: namely observing market activity from a variety of sources and using this information to assess market value at a particular point in time. Given the heterogeneous nature of the underlying transactions (in terms of trading parties, product quality, location, timing, delivery terms and other factors), the analysis conducted by Platts in determining its published price assessments is essentially qualitative, albeit based on a range of quantitative and factual inputs. Furthermore, Platts’ editorial processes are not dependent on volume. Platts has concluded after decades of experience in observing and reporting on markets that transactional volume is not a steady or dependable metric and, as such, Platts has chosen not to construct assessment methods that are dependent on liquidity. Another critical consideration for Platts is that the processes underpinning price discovery are analytical in nature and that even in high liquidity markets Platts exercises informed judgment as to where it sees market value. While the analytical or editorial processes are technical and objective, an editorial judgment underlies each and every assessment Platts publishes. Furthermore, Platts’ primary objective is to reflect market value by closely observing market activity. It has no secondary objective of attempting to dampen volatility, or calming or stimulating high or low prices. Platts believes in free markets and free expression of comment and in being able to publish values in an unfettered manner and being able to inform both consumers and producers — and all interested parties in between — how it views the markets. With the advance of technology and the need for faster communication between Platts and market participants, Platts has more recently adopted use of an online communication tool known as the Editorial Window, better known as “eWindow”, which is one of the ways that enables Platts editors to collect data on market activity quickly and efficiently, and in the process market participants are afforded a clear and in-depth view of oil market data, including bids, offers and trades that are being communicated to the editors. The eWindow technology was developed by IntercontinentalExchange Inc. (NYSE; ICE). While eWindow is used by Platts as a data gathering tool ahead of its assessment activity, market participants can choose to consummate trades on an OTC basis via ICE’s trading platform. Consistent with Platts’ role as a publisher rather than a financial entity whose price assessment and other content are used by market participants at their own volition, it is not regulated in any country. It publishes methodologies and editorial guidelines that are designed to ensure the integrity and transparency of its price assessment processes. While Platts engages actively with the marketplace in regard to changes to its methodologies, it does not change them on the basis of consensus or majority voting from industry participants, but rather with the sole objective of its methodologies yielding price assessments that are reflective of true market value. Platts has a comprehensive suite of policies, processes, procedures and standards including an internal code of ethics which requires all staff to adhere to defined standards and guidelines and also, for instance, requiring that Platts staff have no personal financial interest in the commodities on which it reports. A key purpose is to ensure that Platts, as a neutral market observer, conducts its editorial activities with integrity, fairness and impartiality.

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Platts believes that its price assessments and other information services (as well as those supplied by its competitors) greatly benefit the market and consumers. The price assessments facilitate the widespread availability of trading information to both buyers and sellers of crude oil and oil products as well as to a wide range of other interested parties who may use the information to conduct their business processes and to better understand market conditions. Chapter 3 – Areas for potential recommendations to the G20 about Oil PRAs Impact of Oil PRA Benchmark Prices on physical and financial markets Question for Comment Q1 Are you or your company currently subscribers to the services of PRA(s)? If so, how would you

rate the overall quality of the work being carried out by the PRA(s)? Q2 Please provide information on the impact of PRAs on physical oil and oil derivatives markets. Please support your comments with data on the volume and value of the related physical oil and

oil derivatives business you are aware of, which is dependent on PRA benchmark prices (where possible broken down in to the following categories: OTC; OTC cleared; or exchange-traded)

A2 Platts’ market news and analytical information is available to all of its subscribers through Platts’

publications. Platts real time news and price assessments are also available via third party distributors such as Reuters and Bloomberg. Platts does not control the legitimate commercial purposes for which its price assessments are used by subscribers and/or other end users. Market participants use Platts’ price assessments at their own volition. It is critical to note that Platts has no control over movements in the price of the commodities on which it reports, whether in the physical or derivatives markets, as those are determined by fundamentals of supply and demand. Platts’ price reporters can only follow the market, not lead it. The publishers of information reflect what is occurring in the marketplace and hence they are impacted by the physical and derivatives markets. The activities of market participants affect market conditions and impact price, which in turn affect our views of market prices. For example, if turmoil in the Middle East heightens anxieties in the physical oil markets, derivatives and futures will react accordingly to fears of supply cuts, with the publishers acting as the messenger delivering the news of the higher price to producers and consumers.

However, Platts understands that its price assessments are used by a wide range of market participants for a number of different purposes in the trading process, including to set bilateral contract prices, as an input for data analysis, and to monitor trading performance. Platts’ price assessments are also used by downstream customers, governments, regulators and analysts to assist with planning and analysis for a wide range of purposes.

Platts estimates that 90-95% of crude oil is sold through term contracts, with the balance sold on

the spot market. The distribution ratio between term and spot contracts is likely to be similar for refined products. Spot and term contracts can be agreed by the buyer and seller on a fixed price basis or on a floating basis by reference to a third-party benchmark such as Platts (although in many cases at a discount or premium to that benchmark as determined by the parties to the transaction). The benchmarks used vary as between individual market participants and over time.

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Platts price information is licensed to derivatives exchanges including the InterContinental

Exchange (ICE), the New York Mercantile Exchange (NYMEX), Singapore Mercantile Exchange (SIMEX), the Russian Trading System (RTS), and the Tokyo Commodity Exchange (TOCOM), for use as the basis for derivative contracts that are traded and/or cleared by the licensee. These exchanges use published benchmarks for the physical over-the-counter-market in the trading of futures. In oil, the NYMEX and ICE are the key futures exchanges.

Significance of Methodologies Used by PRAs Questions for Comment Q3 What are the impacts of PRA processes on oil trading markets, physical and/or derivatives? In

your answer please comment on the quality of PRA processes, their strengths, as well as the potential impacts of any perceived weaknesses.

A3 A publisher’s price discovery process — if well accepted by the marketplace — will result in its

assessment being adopted as a reference price in the physical or the derivative market. The impact on markets is therefore known and the methodology underlying the price is typically published. A change in the methodology may impact prices and therefore any such changes are carried out in a deliberate, transparent and inclusive process with the industry. Publishers, including Platts, spend great time and effort to ensure reporting processes are adaptive to market conditions and reflective of market forces. If a publisher fails to adapt its processes to ensure it is attuned to prevailing market standards, the value of its price information as a reference to buyers and sellers would inevitably decline. Contracts between buyers and sellers typically have termination clauses which have in the past been exercised when both the buyer and seller mutually agree that a given price is no longer reflective of market value.

In oil and several other related markets such as petrochemicals, Platts uses a market-on-close (MOC) price assessment process, which is a price-discovery method designed to yield a price assessment reflective of market value at the close of the trading day. The MOC process is a structured system for information gathering that allows transparent and fully verifiable market information to form the basis of the daily price assessment. MOC is a time-tested method for deriving price benchmarks that reflect market value and Platts has provided these benchmarks to global oil markets across Asia, Europe, the Middle East and Africa for more than two decades.

The MOC pricing method recognizes as a core principle that price is a function of time. MOC

enables Platts to have full clarity on the price at the close of the trading day. Because price is a function of time, market assessments reflect values at a defined point in time, allowing both outright and spread values to be properly reflected. MOC guidelines are designed to avoid distortion of the final assessments by eliminating inputs that are not verifiable, and by disregarding one-offs or unrepeatable transactions, or those that may distort the true market level. Transactions between related parties are, for instance, not considered in the assessment process. Secondary checks are carried out as needed, in which Platts will request documentation to support consummation of transactions, which may include contract documentation and other supporting materials such as loading and inspection documents; if this is not forthcoming, it raises questions about that company’s reliability as a data source and can result in Platts disregarding that data. The reliability of data is essential to any valid market pricing methodology and Platts is entitled to (and

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does) remove market participants from the MOC price formation process when the veracity of data is in doubt.

MOC maintains a robust and structured system that uses only data that Platts market editors determine as reliable in the assessment process. Rather than taking price information on trust, Platts will consider submitted information only if the bids and offers are made public, and in real time with full transparency. Parties to transactions included in MOC are identified and all the details of their positions are fully available to the view of the entire market. Companies communicate their bids/offers either via an instant message to a Platts market reporter, who then inputs the information internally in a manner that ensures full transparency to all other participants, or via Platts’ electronic eWindow communication tool (which enables market participants to input data directly on the same basis). In either instance, the information is delivered back to the market at large in real time through the Platts Global Alert service. The bids are required to be firm and remain open to the market at large. Market participants are expected to perform on any stated position in the MOC process. Time cut-offs for the entry of new bids and offers are applied so that market participants cannot bid or offer late in the process in a way that would not be logistically executable. There are also strict standards defining the increment levels for each bid or offer to ensure orderly price formation, to avoid a scenario in which a market might be “gapped” higher or lower. Gapping occurs where a market participant wishes to overpay or undersell, by accepting high and unreasonable offers or low and unreasonable bids. This system has been seen to work well across markets, whether they are liquid or illiquid, whether they are commoditized or non-commoditized. As noted above, the availability of transactional data in illiquid markets is by no means a certainty, but Platts’ oil assessment methodologies are fully capable of contending with sparse data. Where there are no bids, offers or deals observed in the MOC process on a given day in a particular market, the starting point of the assessment process is actually the same as that used on days in which active bids, offers and deals have been observed, i.e. to analyse all data and information that has been obtained throughout the course of the day. In illiquid markets, Platts editors prepare each day for the possibility that there might be no bids, offers or transactions observed by discussing fundamental aspects of supply and demand with a diverse range of market participants, reviewing market events capable of affecting production or shipping, and determining relational values to other related commodities. While it is conceivable that market conditions undergo no change from one day to the next, and therefore the previous day’s assessment may have relevance to a following day’s assessment where there are no bids and offers, Platts is always focused on the market dynamics of the day being assessed. Put another way, time sensitivity is paramount and outweighs any historical data points, such as a previous day’s assessment, even in the absence of any new bids or offers for the day being assessed. On days where there is a scarcity of transactional data, Platts bases its price assessments on a range of factors, including: the value of related products and in other geographic regions, trading in derivatives on futures exchanges such as ICE, and general macro-economic factors. Given that market conditions are highly changeable from one day to another, Platts does not require its editors to apply a rigid formula or model for these purposes; rather the Platts editors must evaluate all of the relevant conditions and factors each day for the price assessment process.

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Q4 Do you consider PRAs to have potential systemic impact on the financial system? Please give reasons for your answers.

A4 Platts is an independent information publisher that observes markets and reports on them for the

benefit of its subscribers. As such, Platts does not have a systemic role in the financial system. We believe that a systemic impact by definition originates at the market level, and not at the information reporting level. Independent publishers such as Platts do not make or lead markets or otherwise influence transactional risk. Their primary impact is in bringing informational clarity to markets. From an assessment standpoint, all market participants are subject to the same eligibility and behavioural criteria and are treated equally in the price assessment process. However, Platts has the ability to exclude, and on occasion does exclude, a market participant from the MOC price assessment process if it determines that doing so is necessary in order to conform to Platts’ methodology and maintain the quality of Platts’ assessments. Platts recognizes that exclusions from the MOC process can sometimes impact the participant concerned and potentially influence market perceptions. This is not, therefore, an action that Platts takes without careful internal consideration. Such exclusions are normally limited to a particular product and a particular geography, while Platts carries out checks to ascertain why its assessment guidelines were not followed. Platts has criteria for determining when to make exclusions and there may be a number of reasons to exclude data from a particular market participant, including:

• the posting of bids and/or offers that Platts’ editors believe are demonstrably out of market; • an unexplained failure to “perform” on a bid or offer if a counterparty “hits” that bid or offer; • an unexplained failure to follow through on the terms of a transaction; • concerns over late deliveries or of substandard qualities; and • poor logistics or poor management of the myriad processes stemming from the moment a sale

occurs to the point a product is safely delivered and paid for. These criteria are applied on a principles basis with the goal of maintaining the quality of Platts’

price assessments. That is, decisions around participation in MOC are made by Platts’ editors through the exercise of judgment and are not rules-based. If Platts attempted to apply rules-based criteria to participation in MOC, it could lead to unanticipated and unintended consequences. Platts exercises its judgment so that bona fide trades are taken into account in the price assessment process.

Platts’ policy is to apply its criteria around MOC participation fairly among all who seek to report

or disclose transactions to Platts. If Platts determines that a participant in the MOC process has consistently failed to follow the

guidelines of a Platts’ methodology, then Platts might choose to exclude that party from the assessment process altogether. Platts will conduct a period of editorial review for excluded parties, which typically involves discussions with the entity’s management to seek assurance that Platts’ public methodology guidelines will be followed in the future.

The editorial team within Platts operates independently from other departments. No other department (e.g., sales) is permitted to have any role in choosing, generating or directly influencing a methodology process and the editorial content intended for publication. The independence of our editorial assessments is paramount to our credibility and it is consequently regarded by Platts as a defining principle for its business.

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Q5 What are your views regarding PRA price methodologies, including your ability to identify methodological errors? Do you consider that mechanisms or procedures exist to address any such concerns and are they adequate? Have PRAs demonstrated responsiveness in updating their methodologies to reflect market development?

A5 Platts maintains a constant alertness to both the overall suitability of a methodology in the face of

changing market conditions, as well as the day-to-day application of methodology to make sure it is publishing assessments that are representative of true market value. Because Platts’ methodologies are designed to provide a clear roadmap to how the assessment is determined and because data relevant to the assessment are fully transparent, market participants are in a position to note any misapplication of methodology and to provide immediate feedback to Platts editors. If there is believed to be a flawed application of methodology, Platts will typically hear from the market on a near real-time basis.

As for the suitability of a methodology in a given market, changing market dynamics require that

methodologies be fully adaptive to these changes, which might include changes in trading patterns, environmental conditions, regulatory changes, changes in taxation or alterations in any number of logistical market practices. Platts always actively consults the market whenever it is considering a material change in its methodology. Sometimes these changes are encouraged by market participants and sometimes they are made by Platts on its own initiative as it aims to maintain the integrity of its assessment processes and the representative nature of its price assessments. In both cases, Platts strives to bring these changes into place on an orderly basis and with ample notice to the marketplace to minimize any potential market disruption. Platts also carefully considers market feedback in response to proposed revisions to its methodology. If a methodology or methodology change fails to yield representative market values in the price assessment process, our expectation is that market participants will surely be inclined to reduce or end their use of that price information and favour information offered by competing price publishers.

Price assessment methodologies evolve over time to reflect ever changing market conditions. The input of market participants/subscribers have input on Platts’ price assessment methodologies is always carefully considered. Most methodology changes relate to specifications;

• For example, Platts modifies its specifications to remain in line with mandated changes in

specifications (e.g. environment regulation), in reaction to foreseen logistical issues (e.g. size of vessels) or market practice variations (e.g. characteristics of physical products).

• Methodology development is the result of interaction with the marketplace. Platts is in constant contact with stakeholders in each market and therefore is in a position to notice changes in industry practice or in mandated specifications. Independence and objectivity is critical to our credibility and Platts could not change and never has changed its methodology out of a desire to favour any vested interest. Our reputation and commercial success depend on publishing assessments that reflect market value.

Platts acts with total editorial independence in respect of changes to its methodologies. It does not

change them to satisfy any particular constituency in the market, nor does it act on the basis of consensus among industry participants. Platts is motivated solely by a desire to implement methodologies that result in publication of assessments that capture true market value in each market. Platts believes that its independence and impartiality are key sources of value to the marketplace. When a change is under consideration, Platts issues a notice to subscribers with a deadline for feedback to be provided.

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Impact of voluntary reporting to PRAs Questions for Comment Q6 Does the voluntary reporting of transactions used in certain PRA assessments pose risk to the price

assessment process? If so, how should these risks be mitigated? Would it be beneficial if reporting of transactions to PRAs were mandated (contractually or by legislation)?

A6 All of Platts price assessment activities are based on voluntary participation in the price discovery

process. Platts offers no inducements — monetary or otherwise — to provide data to Platts and believes the decision by a market participant to participate in Platts’ price discovery should be at its own volition. While Platts believes in general that more data is better than less data, it also believes that the quality and transparency of the data —bids, offers and transactions — that are factored into its price assessments are of paramount importance. Platts has designed its methodologies such that even in the absence of substantial transactional data, it is highly confident of publishing price assessments that are fully reflective of market value (see further our comments in response to Q3).

The concept of mandatory disclosure of transactions is concerning to a publisher such as Platts because, as noted, the quality of data inputs is key to the integrity of our price assessments. Having a multitude of potentially irrelevant mandated disclosures could confuse and/or conceal price formation rather than improve transparency, thereby making the job of price publishers more difficult and price assessments potentially less consistent and reliable. Moreover, it is difficult to see how one could appropriately define either (a) the scope of information which should be disclosed on a mandatory basis or (b) the recipients to whom it must be disclosed, and that these definitional points could be expected to give rise to significant practical/administrative difficulties for all involved. Platts operates in an environment where transactions that are reported to Platts can be few or even rare and also in markets with ample liquidity. Fundamentally, Platts applies editorial judgment and the data analysis process relies on normal free market economics; that is, the determination of the price of the marginal unit. The data gathering and interpretation processes therefore are focused on the highest possible buyer and the lowest possible seller at the close of the market, with the data gathered over the day able to provide narrative and understanding, but not determining the assessment process. This implies that if supplied data pointed to a low price, but at the close of the market buyers are willing to pay a higher price, the market value is where it is and not where it was reported. Conversely, if data were supplied indicating that the market price was higher but sellers at the close of market are offering lower, the newer data supersedes the historical data. Platts editorial oil assessment processes are not geared towards determining an average value but a current market price. The former is informational but the second is indispensable in the marketplace. This is no different from when buying or selling a house. One wants to know where the market in general has been but it is more critical to know where the market is now. It is the same when selling or buying a share in a company; it is informational to know how the stock had performed in the day (average, high and low statistics etc). But what is essential is the price at which one can execute a transaction and for referencing the closing price for the share. Platts mitigates the risks inherent in using voluntary reported transactions in making price assessments by monitoring and assessing both the validity and integrity of the information

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provided to it in relation to underlying trades. Platts has processes to verify that bids and offers have been taken through to completion. Cross-checking data inputs is integral to the assessment process. In the European crude oil and oil products sectors, for example, Platts is in contact with scores of market participants each day in order to gather the relevant details that underpin the price assessments. Secondary checks are periodically carried out, in which Platts will request documentation or other confirmations relating to reported trades. Performance of contracts is expected, even if performance is delayed by extraneous market circumstances like terminal congestion, and other factors that might delay conclusion of a trade. Platts expects any non-performance of a bilateral contract to be compensated so that the trade can be seen to be at arm’s length. Platts follows public editorial guidelines under which it only publishes information that it believes to be bona fide, and filters out any information it believes could misinform or distort the perception of market value. Platts rigorously observes market activity throughout the trading day and determines whether a bid or offer reasonably reflects observed market value. Bids or offers that are observed to be markedly unrepresentative of market value are not considered by Platts editors in the price assessment process. We strongly believe the integrity of the Platts assessment process is improved by the transparency of information we publish and the instant feedback loop from market participants. We are accordingly incentivized to maintain that transparency and react to that feedback Platts also carries out analysis of historic reference price movement to identify price aberrations which might be indicative of manipulation or attempted manipulation of the reference price assessment process. If Platts identified any suspected market manipulation, it would expect to exclude the relevant parties from the price assessment process.

Platts recognizes that it is possible that individual market participants may wish prices to move higher or lower to achieve a particular outcome on a given contract, but we believe the full transparency of the Platts price assessment “window” substantially mitigates the risk. Any bid/offer prices that are out of market will be noticed by Platts and the rest of the market, who could call on any offers that are too high or low. As noted in our response to Q3, Platts also operates strict standards defining the increment levels for each bid or offer to address any attempts to “gap’ a market higher or lower.

Q7 Do low numbers of transactions used in certain PRA assessments pose risks to the price

assessment process? If so, what crude grades and markets do you see affected by this? What is considered to be a ‘low’ number? How should any such risks be mitigated?

A7 Platts does not depend on transactions alone as it analyzes market data and formulates oil price

assessments. Platts’ oil assessment methodologies often give as much weight to bids and offers as they do transactions. What is of greatest importance is that the transactional details — bids, offers and deals — are fully transparent, available to the marketplace at large and are “firm” — that is to say the market participant is committed to acting on its stated intention to buy or sell. This is called performance, and Platts employs strict guidelines to assure that market participants stand behind their stated bids and offers.

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By giving market participants the ability to demonstrate the value of any commodity by bidding for it, or offering it to the open market in real-time, Platts allows market participants themselves to prove the value of the commodities that it assesses.

Platts has editorial protocols that filter out bids or offers that could result in price obscurity or illogical market behaviour. The rules on how and when bids and offers can be incrementally changed and allow evaluation of whether bids/offers are typical and repeatable market values, or outliers designed to mask or obfuscate the market level. In addition, see the Platts criteria around not using certain data as set out in the answer to question 4 above. It has been asserted that the Platts market-on-close (MOC) methodology does not work well in highly liquid markets because there is too much data, or that MOC does not work well in illiquid markets because there is not enough data. Platts believes that having more rather than less market data is positive, and Platts’ assessment methods have the added benefit of tending to concentrate data liquidity into time frames at the close of the day. Markets in general naturally tend toward concentration mechanisms such as malls or market days or times of day to ensure that buyers and sellers can easily meet. MOC or windows are the modern-day equivalent of market days in an agrarian society. Sophisticated financial markets, including energy exchanges, also concentrate activity around the time of settlement. Some exchanges have settlement systems where they employ the equivalent of window processes lasting generally from one minute to 30 minutes. In summary, Platts’ assessment processes are editorial in nature. The assessments Platts publishes are based on data which may be direct or indirect, sparse or ample, but are always underpinned by a clear methodology and analytical interpretation of available information. Platts’ published prices are commonly referred to as assessments out of recognition that they are the product of editorial judgment.

Platts always assesses by analyzing data in a specific market while also evaluating the conditions in the overall market. Platts also recognizes that many markets may not have daily liquidity but, nevertheless, that commodities have an inherent value. In the earlier example of the house, a valuer is able to reasonably estimate the value of a house even if no transaction has occurred in the neighbourhood for weeks or even months.

Q8 Taking account of existing PRA procedures to obtain information on which to base their

assessment when no transactions have been submitted, are there any other approaches that may produce their benchmark prices in the absence of liquidity?

A8 Platts has established editorial processes to assess markets with ample or poor liquidity. Platts

reviews its processes to determine improvements or adaptations and after many decades of publishing market information we have determined that experience and knowledge of markets ensures continuity of data and an ability to assess the value of commodities even if direct data is missing.

Platts editors apply Platts’ methodology over and above the collection of relevant bids, offers and transactions when determining reference prices. On days where there are a lot of transactions with a very narrow spread, there is very little need for editorial judgment. On other days where there are fewer trades or a wider spread, Platts' editors’ experience and comprehensive market knowledge are used to assess prices by evaluating the spreads of, and doing comparisons with,

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correlated products. Value is typically assessed above the highest bid and below the lowest offer that stands at the close of the process.

Accountability of PRAs Questions for Comment Q9 Are there any issues regarding PRAs that concern you from a public accountability perspective? A9 Platts publications and services are used by its subscribers every day. We are considered relevant

if we deliver quality information. The accountability boils down to ensuring we publish information that is of value and that we assess prices in line with free market forces. The process is very simple at the core: if a publisher fails to deliver on its core competence, its value in the market will tend to erode.

Q10 Do you consider the function performed by PRAs to require a form of public oversight of PRAs?

If so, which PRA activities should be subject to a form of public oversight and why? A10 A publisher of market information is in essence no different than any other publisher of

information. Public oversight exists in that the system has natural checks and balances to ensure there is no defamation or distortion of facts. The composition of a publisher’s subscribers contains producers and consumers who are active reviewers of published output and are in a position to provide active input in regard to all published information, including price assessments and the methodologies employed to formulate price assessments. A public oversight body may issue its views and Platts would welcome them, provided they are not biased by a producer or consumer interest, since Platts’ objective — and indeed its core value — is to offer the market an independent and impartial view. Platts believes in the free flow of information and believes a publisher must be free to publish its views in an unfettered manner in the appropriate jurisdictions.

Governance of Oil PRAs Questions for Comment Q11 Please detail any concerns you many have about current ownership of PRAs in particular with

regard to possible conflicts of interest. Questions for Comment Q12 Do you have any concerns regarding the current corporation governance standards of PRAs. If so,

what are the improvements that you believe are needed? Q13 Do PRAs need to be subject to standards of corporate governance that are equivalent to the

standards to which regulated financial entities are subject? Please elaborate. A11, A12, and A13 Platts is owned by The McGraw-Hill Companies, Inc., (“McGraw-Hill”), a global information

services provider, headquartered in New York and listed on the New York Stock Exchange.

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McGraw-Hill has delegated the management of Platts to the Platts Executive Committee, chaired by the President of Platts. The purpose of the Executive Committee is to: • Set the strategic objectives of Platts and oversee its achievement • Oversee the financial and operational performance of Platts • Determine the nature and extent of the significant risks Platts is willing to take • Manage and review risk across Platts and ensure a framework of effective controls is in place

across the functions • Manage Platts to ensure it meets its legal and regulatory obligations, and adheres to the policy

requirements of McGraw-Hill, • Provide assurance on Platts’ risk management and governance arrangements, and • Set and oversee attainment of Platts values and standards.

Platts’ price-assessment methods and practices, developed over many decades, are fully open to public view and are monitored by a compliance department independent of the editorial staff. Platts takes very seriously its efforts to maintain the integrity of its pricing methods and to publish price data that reflect market values.

Platts’ Risk and Compliance department, which is headed by Platts’ Quality and Risk Officer who

reports to the Platts President, is responsible for providing oversight of Platts’ performance against risk and compliance parameters to ensure that all risks are properly managed and that Platts complies with all relevant regulatory requirements. Platts has a comprehensive set of processes, risk policies and standards that are designed to ensure that the business is consistently managed prudently. As part of Platts’ annual compliance program, employees are required to provide compliance certifications, complete annual conflicts disclosure questionnaires, attend training programs (for example, on money laundering) and satisfy other compliance related requirements. Regarding comparisons to financial entities, Platts agrees that price reporting organizations should observe the highest possible standards of corporate governance and controls. Platts is, however, a publisher that reports on the markets its serves and whose revenues are almost entirely based on subscriptions to its publications. Platts’ function is to inform the public and its customers in as transparent a manner as possible and to share its views and opinions on what is happening in the marketplace. This distinguishes Platts from financial entities that can, at times, participate directly in the financial markets.

Systems and controls over methodologies and internal policies Questions for Comment Q14 Do you have any concerns as to the robustness of the system and controls in place at PRAs as they

relate to the integrity of the processes used to construct price series or indices? Please explain. A14 Platts continuously reviews its price assessment processes to ensure they are robust and are used to

publish representative market values. Platts analyses markets, reviews activity, engages with the marketplace and generates publications and services that are successful only if they are believed to add value to customers. For Platts, integrity of pricing does not just refer to the logical processes

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for observing transactions for purposes of determining price assessments, but also the systems that deliver the right result from a foundation of reliable data and well-structured methodologies. Platts strives to make the process by which we arrive at published prices as transparent as possible. In the oil markets, Platts now discloses the names of market participants, on the principle that if as a result of a purchase or sale of a commodity, there is an impact on price, then the market should be given transparency. Meanwhile, Platts publishes comprehensive market-reporting methodologies, regularly updated, on its website at platts.com. Most importantly, in terms of process, Platts employs real-time information systems in the interest of transparency. As transactions occur minute by minute, teams of Platts market editors publish in real time the bids, offers and transactions reported to us, and transmit them openly to the oil markets at large. The effect is to create a virtual community in which all participants are visible to one another, and any anomalous behaviour becomes apparent and promptly corrected. From a controls standpoint, Platts has adopted a three-tier risk governance framework, often described as the three lines of defence model, which distinguishes between the management, control, and assurance of risk and compliance management. As an element of the first line of defence, Platts has created a Markets and Assessments Quality Group function that is charged with monitoring day-to-day control activities, and performing periodic testing to ensure editorial practices, systems and pricing standards that are undertaken by separate editorial departments, are operating in accordance with our published specifications. This group is also responsible to ensure our systems are dynamic and responsive to customer and market needs. The group is designed to advise and enhance the quality of a range of operational activities including those related to production, editorial operations and data integrity. The Platts Markets and Assessments Quality Group is intended to work closely with our Quality, Risk and Compliance Group to provide the necessary assurances that Platts is operating in accordance with approved policies, standards and procedures. The foregoing demonstrates Platts’ commitment to robust systems and controls which manifest Platts’ commitment to the integrity of its price assessments.

Q15 Which authority, if any, should establish a set of principles for the appropriate level of systems and

controls within a PRA and in particular as they relate to PRA benchmark methodologies? Would this sufficiently address any concerns you may have and, if so, how? A15 Platts operates in many jurisdictions and supplies information to customers located throughout the

world. Platts believes in the free flow of information and would find external controls — particularly around methodology and any associated decision making — as an unacceptable intrusion on its rights as a publisher to convey information, opinion and data — including price assessments — to its customers and the marketplace. On a number of occasions over its history, Platts has encountered proposals made in good faith that would have external bodies, including industry panels, performing a role in its editorial decision making. On closer inspection, these ideas, while well meaning, often founder on the question of potential conflicts of interest among the parties involved. Platts believes its editorial independence and impartiality are key drivers of the value it offers the marketplace and would caution against any structures that would undermine that independence and potentially lead to real or perceived biases in favour of producers or consumers. That stated and as previously noted, Platts is open to suggestions from the regulatory

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sphere and the marketplace on how it can improve its internal governance and controls, and is prepared to submit to periodic review by regulatory authorities of its governance and controls, including through an industry Code of Conduct.

Q16 Should PRAs as a general matter be subject to a specified external audit of individual operations or

processes, the results of which could be published demonstrating standards of compliance with relevant rules? Would PRAs need to be held to account for such an audit and, if so, which organisations would be best placed to carry out such an audit? What are the benefits and risks?

A16 As noted above, Platts has adopted a three-tier risk governance framework, often described as the

three lines of defence model, which distinguishes between the management, control and assurance of risk and compliance management.

Platts’ business leaders are responsible for the identification, assessment, management, control, monitoring and reporting of risks that arise in their areas in accordance with our defined policies, systems and controls and for implementing local business unit systems and controls as appropriate. In so doing the business fulfills first line of defence activities.

Our Quality Risk and Compliance department perform second line of defence activities. Their role includes providing monitoring, review and challenge to the business in the areas of risk management and compliance. Additionally, some second line of defence activities are also provided by other control functions such as Finance with Sarbanes Oxley testing. Finally, Internal and External Audit, as a separate and distinct assurance function, independent from Platts’ Executive, provides the third line of defence.

Platts would be open to providing a published report summarising details from an annual audit. As further discussed below, Platts has been in discussions with other price publishers in consideration of a proposed draft Code of Conduct for independent price reporting organizations. The proposed Code would be principles based and include provisions that would, for example, require auditing of adherence to terms of the Code.

Complaints handling Questions for Comment Q17 Should PRAs be required to incorporate into their rules, if absent, a formal complaints procedure.

If so, please explain what would be your preference in terms of procedure or process? A17 Yes. Please see details below in our response to Question 19. Q18 Should disputes be resolved by an appropriate third party as a matter of course? Please explain the

benefits and risks. Q18 Platts observes in the course of its assessment processes instances of disagreement between

transaction parties, since in the world of physical commodities, constraints sometimes cause shipping or loading delays, issues with the qualities or quantities of material and general logistical performance issues. Platts may help to resolve such disputes to the extent they concern its assessment process. Platts’ involvement is limited and is for the sole purpose of Platts’

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consideration of the transaction at issue in its assessment process. In this role, Platts acts as a neutral and independent party as it neither buys, sells, stores, recommends to buy or sell any commodity. Platts’ core function is to ensure it assesses markets properly and that it considers only inputs that do not impair the assessment process or distort the end-of-day assessment. We would not consider inputs/transactions where, for example, sub-standard materials are delivered or are delivered routinely late, as these factors can distort price. Platts believes it is well positioned to play a role in facilitating the resolution of disputes that could otherwise impact its assessment processes. With regard to disputes between Platts and its subscribers, see our answer to Q19 below.

Q19 Should such formal complaints procedures necessitate greater transparency in the handling and

resolution of complaints by PRAs, for example by requiring transparency of the complaints process and publication of decisions and the rationale for them?

A19 Platts has developed a transparent complaints framework for the timely handling and escalation of

complaints. Complaints are all formally acknowledged in writing within specified timelines according to the seriousness of the complaint, but all within two business days from date of receipt. Formal responses are prepared following consideration of the complaint and are provided in accordance with specific timelines, which is normally within two to five working days.

Platts provides training for those staff directly involved with reviewing, managing and handling

complaints. Platts’ internal processes have been designed to ensure staff adhere to applicable policies, standards and procedures.

Conflicts of interest Questions for Comment Q20 Please describe concerns you may have relating to potential conflicts of interest affecting PRAs

arising from revenue generation, media reporting, internal staff management or any other source, Has this had any impact on the price reporting function of PRAs and if so how?

A20 The vast majority of Platts’ revenues come from subscriptions. Platts has subscribers on both the

buying and selling side. Platts has no incentive to influence oil prices or their level of volatility. If assessments are not perceived as fair, independent and ultimately representative of market value, Platts would lose business.

It is therefore essential to Platts that our price assessments are free of any actual or perceived conflicts of interest. Platts maintains a Conflicts of Interest Policy which applies to all Platts employees. This policy includes details on restrictions and prohibitions together with values and standards expected of all employees. Failure to comply with the policy subjects to the employee to discipline, up to and including termination of employment.

The Conflicts of Interest Policy is designed to ensure that editorial decisions are not influenced by,

or perceived to be influenced by, Platts’ commercial interests. Platts maintains a separation between Editorial activities and commercial activities, in that Editorial employees are generally prohibited from participating in:

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• Pricing or other commercial discussions or decisions in relation to Platts’ products • Budgeting and/or the establishment of revenue targets for Platts products. Further, Platts does not evaluate any employee with Editorial responsibilities based on the profits, revenues or any other financial metric associated with Platts’ products. The Conflicts of Interest Policy also includes restrictions governing: • Ownership and trading by employees of financial instruments in industries on which Plats

reports, • commercial relationships with clients, • receipt of gifts from outside parties, and • outside business or commercial activities.

Platts also maintains a comprehensive set of risk policy, process and standards documents designed to ensure the business is consistently managed within an agreed framework. Platts’ Quality Risk and Compliance Department are responsible for providing oversight of Platts’ performance against risk and compliance parameters to ensure all risks are managed to an acceptable level and that the organization complies with policies, standards and relevant and regulatory requirements.

As part of Platts’ annual compliance program, employees are regularly required to provide compliance certifications, complete conflicts disclosure questionnaires, complete certain training programs and satisfy other compliance related requirements.

Competition aspects attached to the PRA sector Questions for Comment Q21 Are there any undue obstacles that prevent market participants from adopting different sources for

price references? Please explain.

A21 Market participants adopt numerous sources of reference for their pricing decisions. Critically, both buyer and seller must agree to the reference used in contracts. The key elements of a reference price that is used to price transactions is that the price must be considered by both parties to be representative of market value and objectively based. There is ample evidence that benchmarks and other price references are not fixed over time. In general, Platts has noticed a tendency of buyers and sellers to rely increasingly on assessments that are timely and that reflect transparent methodologies.

Q22 If so, does this constitute a competitive concern for either individual PRA benchmarks or the PRA

sector as a whole? Where appropriate, please refer to specific benchmarks. A22 There are any number of examples of price benchmarks that have ceased to provide a global or

strong regional referencing point, with the result that industry users have migrated away from those prices to alternatives. There is ample literature written, for example, on US benchmarking and switches that were made by market participants to either sour or alternative Brent pricing in

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the US crude market. We believe that the record suggests there are limited barriers to entry, exit or switch in the price reporting industry.

Q23 If you have concerns about competition relating either to individual PRAs or to the PRA sector or

around individual benchmarks, please comment on how you think these could be addressed. A23 Price reporting in oil and other commodities markets is a global activity. Platts has noted a

number of emerging competitors in providing price assessments, including among financial information providers and exchanges. Competition may become more intense as increasing volumes of derivative transactions are consummated on exchanges and cleared through centralized clearing houses pursuant to Dodd Frank and analogous local regulatory requirements. In defining the market for purposes of analyzing competition in price reporting, all entities that publish and/or disseminate prices in physical and derivative oil and other energy markets should be considered.

Stakeholder representation Questions for Comment Q24 Is there a need for structural reforms that would provide a process or mechanism for increased

stakeholder representation or input of views? Given the use of PRAs by the oil industry, what mechanism would be needed to alleviate concerns of collusion?

A24 Platts’ editorial processes are independent and impartial but we are very interested in hearing and

considering all views, and not just from a limited number of stakeholders. Hence, Platts as a matter of course holds numerous forums and gatherings to engage the industry where we solicit open views. Furthermore, Platts publishes subscriber notes and invites comments that any interested party can submit for review. The views are never monolithic as, by definition, there are always buyers and sellers and their opposing views are critically important for an independent party such as Platts to determine sound editorial practices and standards. With respect to concerns of collusion in the price discovery process, Platts has put in place a number of mechanisms in its market-on-close process to mitigate concerns, such as (i) a policy of recognising data inputs only from reputable companies with solid performance records and the demonstrated ability to handle trading logistics; (ii) a requirement that all bid/offers reported to Platts be transacted with the first participant to agree to match their required terms; (iii) application of strict rules regarding the maximum level of increment that may be made to each bid/offer, thereby preventing any market participant from “gapping” the market and ensuring that each level of market support or resistance is tested; (iv) providing full transparency of information reported to Platts and the resulting instant feedback loop from market participants, along with periodic cross-checking of data inputs to establish that they are valid; and (v) exclusion of all bids or offers that are deemed to be unrepresentative of market value.

Q25 What should be included in the terms of reference of objectives of any such process? What are the benefits and risks?

A25 Platts holds forums on critical issues where it welcomes participants on a first-come, first-served

basis and invites industry participants, producers, consumers, media, regulators, consultants and commentators. We strongly believe that any process or gathering needs to be broad and inclusive as any participant represents a different facet of the market.

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Q26 Who, if any one, should provide any oversight for such a process? A26 Platts’ forum format is open and transparent. Platts believes that anything that impedes the free

flow of ideas and comments is potentially counter-productive. Platts believes the forum format works well and we understand that other publishers and organizations follow a similar approach.

Option for oversight Questions for Comment Q27 If required, what would be appropriate models for oversight of PRAs, covering the options

described above and potentially others you may consider appropriate? What are the potential benefits and risks, if any? What economic impact, if any, would there be?

A27 The need for regulating physical oil markets has not been subjected to the sort of rigorous and

quantitative cost benefit analysis that is normally conducted before a complex global regulatory regime is established. Moreover, the criticisms of the PRA system are, we believe, anecdotal and we are not aware of any evidence that the current system is broken, or that the benefits of reforming the system would outweigh the costs.

Platts believes that its track record is exceptionally strong and we continue to engage in efforts to improve our governance, controls and processes. We do recognize that there is market interest in what we do to ensure the integrity of our price discovery and the value of our price assessments. To this end, we have worked with other PRAs over the past several months to create a Code of Conduct — discussed in some detail in our answers to Q 28 and Q 29 below — that we believe represents the optimal framework for balancing the needs for appropriate governance, controls and processes among PRAs with the need for editorial flexibility. The self-regulatory model espoused by Platts and its competitors has worked well in other markets and Platts believes that it would work well among PRAs. Platts shares with IOSCO the objective of doing all we can to inspire confidence in the work we do in support of the effective functioning of the markets on which we report.

Q28 Do you believe that a self-regulated PRA Code of Conduct could appropriately mitigate any risks or concerns you have about PRA governance? Please explain any concerns or identified risks and give reasons for your answer.

A28 In Platts’ view a self-regulatory Code for independent price reporting organisations could

appropriately mitigate risks and concerns around all the following areas:

• Impact of Oil PRA Benchmark Prices on physical and financial oil markets functioning; • Significant and Robustness of Methodologies Used by PRAs; • Voluntary trade reporting to PRAs; • Accountability of PRAs; • Governance of Oil PRAs in relation to regulated financial entities; • Competition aspects; • Dealing with and managing complaints;

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• Annual audits; • Stakeholder representation and PRAs role in market development; and • Public accountability of PRAs.

Q29 Would your view of the application of a Code of Conduct change if the PRAs were held to account for its application by a public authority? Please explain and, if appropriate, state which authority or authorities would be best placed to hold the PRAs to account. What, if any, are the potential benefits and risks?

A29 As noted, Platts has been engaged, in conjunction with other price publishers, in drafting a self-

regulatory Code of Conduct to mitigate risks and concerns as described in the response provided to Question 28 above.

The Code would be principles based; its key purpose would be to demonstrate to third parties that the price publisher has committed to, at a minimum, conform to the high standards and principles of good governance required and promoted by the Code. It is proposed that each price publisher becoming a signatory to the Code would engage an internationally recognized external audit firm of its choosing, or other reputable firm acceptable to IOSCO or independent internal audit group within the price publishers’ corporate organisation acceptable to IOSCO, to conduct an independent review of its compliance with the Code. The results of the review would be summarized in a report to that price publisher, issued by the auditor, and published by the price publisher within 30 days on its website. At the end of the 12 month period following the date on which this Code comes into effect and annually thereafter, each price publisher would prepare, as appropriate, an Attestation of Compliance or an Explanation of Material Non-compliance. The Attestation of Compliance or Explanation of Material Non-compliance would be signed by the price publisher’s chief executive officer and would be published prominently on the price publisher’s website. In the case of an Explanation of Material Non-compliance, the explanation would include the reason(s) for each case of material non-compliance and set forth a description of the remedial steps the price publisher would take (or, as the case may be, is already taking) to achieve compliance in the future. Platts looks forward to engaging with IOSCO and market participants on the Code and the manner in which price publishers would be held to account for compliance to the Code.

Q30 Should greater attention be focused by all market authorities, namely exchanges, their governmental regulators and relevant SROs, on the reliability of price series and indexes that are constructed by oil PRAs? If “yes”, please comment on the objectives of and mechanisms of such greater involvement by these market authorities. If possible, please provide examples of financial instrument that raise price series/index reliability concerns.

A30 The market selects which price data it wants to use without any undue influence by the publishers.

The marketplace is best positioned to determine reliability of indices or assessments and their use. All market participants are free to choose and there are numerous examples of the market making those choices. For instance, exchanges exercise their independence by building their own instruments or choosing instruments from the publishers to list and the overall market chooses

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what instruments suit best. As indicated earlier, there needs to be a match in the requirement of the buyer and seller for the reference or index to be used.

Q31 Should IOSCO and any other relevant authorities develop for regulated markets and other trading

facilities which use PRA benchmark prices in their derivatives contract a set of specific criteria against which the suitability of PRA benchmarks should be assessed? If so, which criteria do you think should be included?

A31 Platts believes in the expression of free markets. If IOSCO were to construct specific criteria

against which the suitability of PRA benchmarks that are used in traded derivatives contracts is assessed, Platts would consider carrying such information in its publications with a proper identifier. Just as an example, Platts publishes third-party data such as futures data and properly references such data as futures. We could theoretically do the same for data constructed on behalf of IOSCO or any third party. A key principle remains that the development of any such criteria should not be interpreted as providing IOSCO or any other government authority jurisdiction in determining the methodology used by Platts to assess markets, as this would constitute an unacceptable intrusion in its independence as a publisher. As noted above, Platts has well defined practices for methodology development that are consistent, transparent and take into full account the views of the marketplace. As part of these processes, Platts is of course open to the input of not just market participants, but all constituents including regulators, tax authorities and any other stakeholders in the marketplace.

Platts welcomes an open debate and disclosure of any shortcomings in the market directly attributed to publishers. We also would like to state very directly that Platts publishes its own views and opinions of market values and relies fully on free market processes. We believe that markets need unfettered information in order to function efficiently and effectively.

Annex 1

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