ABSTRACT
Benchmarks are used throughout the commodity supply chain. The three factors that have driven the selection of one PRA rather than another are, namely: first-mover advantage, frequency and methodology. There are thousands of commodity prices published by price reporting agencies (PRAs) every day but only those that are used as reference prices in contracts are classed as benchmarks. PRAs devote considerable resources to promoting a change in benchmarks, despite the industry's very limited record of switches. Some commodity price benchmarks are also set directly by sellers on a monthly basis and are known as 'posted prices' or official selling prices (OSPs). Another source of benchmarks is broker indexes, which are commodity price indexes established by over-the-counter brokers. The importance of benchmarks to the commodity markets means that there is inevitably a concern that benchmarks could be manipulated, particularly given the scandals in recent years around some of the financial benchmarks, such as the London Interbank Offered Rate (LIBOR).
