Price information service

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As a price information service (also price reporting agency, English: "Price Reporting Agency", PRA ) is a service company or offer that provides a price index or benchmark in the capital and commodity markets .

Provision of benchmarks

The provision of a benchmark involves designing and managing the mechanism for determining the benchmark. At a predetermined frequency, input data is collected, analyzed and processed for the purpose of benchmark determination. A formula or other calculation method is then applied to determine the benchmark. This benchmark is then distributed or published, usually as a time series. Distribution takes place via newsletters, industry information services, websites or price feeds, whereby subscription fees of different amounts are incurred depending on the timeliness and scope of the data as well as the further processing permitted under license law.

In liquid markets in which trading only takes place on a regulated marketplace, indices are usually collected by the operators of this regulated marketplace themselves. One example of this is the DAX , a Deutsche Börse AG brand . The DAX only tracks stocks that are traded on the Frankfurt Stock Exchange. In contrast, the S&P 500 tracks stocks from both NYSE and NASDAQ , two exchanges with different operators. The S&P 500 is published by S&P Dow Jones Indices, a subsidiary of McGraw-Hill . These stock market indices only use trading data from stock exchanges as input data; the calculation methods and weightings are transparent.

In less liquid markets, especially in commodities trading , a large part of the trading takes place over the counter (OTC). In addition to real data such as bid-ask spreads from broker platforms , price information services also use the survey method here. Large dealers are contacted in fixed time frames and asked about transactions and prices achieved. This method can also be partially automated by electronically transferring offer and sales prices as well as transactions made to the price information service within the time window. This method was introduced in 1992 by Platts in oil trading under the name "market-on-close" (MOC), a half-hour period before the end of trading, during which price data is collected daily.

Business model

Certain offers of the price information services are comparable with the business models of publishers for business news. Newsletters and information packages on specific aspects of a market are published at regular intervals (daily, weekly, monthly). Large providers are able to divide their offers and offer them in different packages, for example as a country report (geographical definition), as a product report (supply-side definition) or as a customer report (demand-side definition). These offers mostly provide background information, current news and forecasts of a qualitative nature. The distribution takes place via subscriptions.

The economic core offer of the price information services are the prices, benchmarks and indices. The closer to real-time trading this data is collected and distributed, the more expensive it can be to sell. Once a certain index has established itself as a benchmark in long-term supply contracts, the users of the benchmark are practically forced to subscribe to the respective price information service for at least as long as the last contract based on it is billed. In certain raw material markets, such as the gas market, supply contracts of up to five years are not uncommon. The providers of established benchmarks can thus achieve monopoly rents.

Criticism and regulation

The collection and calculation of certain benchmarks and indices is criticized as being non-transparent and prone to manipulation. In surveys and trade windows, companies often contribute to the formation of indices that have a high economic interest in price movements in a certain direction because of their positions. Even the smallest price movements of indices can cause high profits or losses due to the leverage effect of the derivatives concluded on them. The survey at certain times such as the end of the month, which is used for fixing in the case of long-term supply contracts, is particularly critical. Gunvor , for example, was accused in 2012 of manipulating the benchmark for Urals oil determined by Platts over four years in order to shift profits from Russian state revenues to the private company Gunvor. The price information services themselves, which generate their sales with these companies, are also criticized.

In 2013, for example , offices at BP , Shell , Statoil and Platts were searched because there was suspicion that the oil price had been manipulated for ten years. In order to avoid this accusation, a number of companies discontinued contact with the price information services as a supplier of market data, which tends to worsen the quality and manipulation security of the indices due to the falling liquidity of the prices queried. Attempts to counter this criticism through self-regulation or regulation from outside were promoted above all by the Libor scandal uncovered in 2012 .

In 2013 IOSCO published its “Principles for Financial Benchmarks”, which formulated requirements for the monitoring of price information services and the collection of benchmarks. Essentially, these requirements should be introduced through voluntary commitment. Some price information services, such as ICAP (2014), have already voluntarily submitted to the IOSCO principles. The collection of the interest rate indices Libor , Euribor and Tibor affected by the Libor scandal has been converted to the IOSCO principles under the supervision of the FCA .

In 2012, the EU went even further with its legislative proposal to regulate “indices that are used as benchmarks for financial instruments and financial contracts”, on the one hand in terms of the requirements and on the other hand in the intended type of introduction. While the publication of price information cannot be forbidden in the sense of freedom of the press, the proposal attacks users: financial companies that are subject to regulation are simply prohibited from using non-regulated indices. A consultation took place in 2012, the proposed EU directive has not yet become law.

Relevant providers

Oil and LNG are traded globally. Accordingly, global PRAs dominate. The three leading price information services in the energy sector are:

The PRAs Thomson Reuters , Bloomberg and Dow Jones, which are active in the financial sector , are also partly active in the energy sector, but do not dominate there. There are also PRAs with a national or regional focus that serve sub-markets. In the energy sector, these include Opis (USA), OMR (Germany), e-petrol (Poland), IHS McCloskey (Great Britain), Kortes (Russia) and RIM (Japan).

In the metals trade, the leading PRAs are:

  • CRU (Commodities Research Unit), founded in 1968 in London
  • Metal Bulletin , founded in London in 1913, part of Euromoney Institutional Investor since 2006
  • Platts , especially since acquiring the Steel Business Briefing Group (SBB) and The Steel Index (TSI), both in 2011.

Individual evidence

  1. ↑ Platts: An Introduction to Platts MARKET-ON-CLOSE Process in Petroleum . (Accessed November 2014)
  2. ^ Fixing the fix: The European Union wants to change how commodity benchmarks are set . In: The Economist , February 8, 2014.
  3. ^ Gunvor: Riddles, mysteries and enigmas . In: The Economist , May 5, 2012.
  4. ^ Rupert Neate, Terry Macalister: BP and Shell raided in European commission price-rigging inquiry . In: The Guardian , May 15, 2013.
  5. ^ Terry Macalister: Price reporting agencies cut out of the loop . In: The Guardian , May 8, 2013.
  6. ^ IOSCO: Principles for Financial Benchmarks , Final Report (July 2013). IOSCO document number FR07 / 13.
  7. ↑ ICAP: ICAP welcomes and adopts the IOSCO Principles for Financial Benchmarks . London 29th July 2014
  8. ↑ FCA: Review of the Implementation of IOSCO's Principles for Financial Benchmarks by Administrators of Euribor, Libor and Tibor . July 2014.
  9. ↑ EU: Proposal for a regulation of the European Parliament and of the Council on indices used as benchmarks in financial instruments and financial contracts . Brussels, September 18, 2013. COM (2013) 641 final, 013/0314 (COD).
  10. ↑ Consultation on a Possible Framework for the Regulation of the Production and Use of Indices serving as Benchmarks in Financial and other Contracts , DG Internal Market, EC 2012
  11. ^ Argus Media: Consultation Response , 2012.
  12. ↑ Simon Casey: Metal Bulletin Likely to Introduce Auditing of Pricing . In: Bloomberg News, June 7, 2013.