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* Draft law, unlikely to take effect before 2014
* Proposes allowing companies to sue PRAs
By Peg Mackey and Alex Lawler
LONDON, June 6 (Reuters) - Tough new rules proposed by theEuropean Union for financial benchmarks would seriously threatenoil price reporting agencies (PRAs), industry sources say, asthey could impose huge liabilities on oil publishers andparticipants.
Oil price reporting agencies were already under renewedscrutiny after European authorities raided the London office oflead price publisher Platts - a unit of McGraw Hill -as well as oil majors BP, Shell and Statoil, saying they suspected oil prices had been manipulated.
The EU's draft law, which is unlikely to take effect before2014, proposes that regulation of top benchmarks like Libor andoil be shifted to the Paris-based European Securities andMarkets Authority (ESMA).
"This is heavy-handed regulation, and if it's applied aswritten, it will make oil price reporting unworkable," said asenior oil industry source who requested anonymity.
"These rules were designed for Libor and have nothing to dowith open markets."
Platts - along with smaller rivals privately held ArgusMedia and ICIS, a unit of Reed Elsevier - providesclients with prices assessed by reporters canvassing sources inopaque energy markets. Their assessments are used as benchmarksto settle physical and derivative deals worth billions in a $2.5trillion market.
"We share the EC view that benchmarks should be robust,reliable and promote confidence in the marketplace," said aPlatts spokeswoman.
"But (we) are wary of any measures that could discourageparticipation in the price reporting process, inadvertentlyreversing the progress made in recent years in promotingtransparency of pricing in energy and other commodity markets,"she added.
Argus and ICIS were not available to comment on theconsequences of the EU draft - made available on Thursday -which could yet be watered down.
The agencies have vigorously argued that commodities marketsare very different from the rates market and should be exemptfrom external oversight and new regulations proposed in theaftermath of the Libor rate-rigging scandal.
"The EU regulations would make it very difficult for marketsto operate," said an oil industry executive who also requestedanonymity. "Draconian is a mild term for them."
LEGAL ELEMENTS
Of particular concern is a provision that would allow anenergy company to sue a PRA if the publisher is thought to havemade a mistake in its assessment.
"The entire basis of PRA businesses is that the prices areprovided 'for information purposes' and are used by the marketat the market's own risk," said the senior industry source.
Journalists at reporting agencies assess prices by callingas many traders as possible and contacting them via instantmessaging to ask where they see the market, trying to avoidpitfalls such as reflecting only a buyer's or seller's views.
The proposed EU rules also put the onus on the pricereporter to inform ESMA of suspected manipulation.
Another article stipulates the need for a legal agreementbetween data suppliers and benchmark providers.
"This will make the oil companies reluctant to supply anydata to the price reporting agencies," said the industryexecutive.
Oil companies may also find the proposed EU rules unworkablebecause they are unlikely to sign a binding legal agreementabout how they submit data, said the industry sources.
The PRAs are likely to have teams of lawyers poring over the84-page EU document. "The fall back position is always, 'youcan't regulate us - we're journalists,'" said the seniorindustry source.
The PRAs' preference was for the EU to adopt proposals putforward by the International Organisation of SecuritiesCommissions (IOSCO) that outlined recommended practices, theindustry sources said.
Thomson Reuters, parent of Reuters news, competeswith Platts, Argus and ICIS in providing news and information tothe oil markets. Argus declined to comment.
