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GCHL invests much time and effort in ensuring that its indices are reliable and trustworthy. We have built a robust framework of safeguards which work together to identify and prevent potentially manipulative behaviour. Furthermore, compliance with the IOSCO Principles and independent oversight of processes ensure that GCHL's safeguards continue to operate effectively.
Safeguards within the methodology
Robust inputs are critical to ensuring robust output. A fundamental principle of GCHL's index methodology is in the nature of the inputs into the calculation
- All data (trades, bids and offers) are posted or executed through the globalNICKEL platform in a fully transparent and auditable way
- All orders are for a standard specification, so that prices are fully comparable and no subjective normalisation is required
In addition, other qualifying criteria apply, including:
- Current month data is excluded to avoid the distorting price effect of very prompt cargoes
- Order data must be posted to the trading screen for a minimum of 15 minutes
View our methodologies: Class 1 Nickel indices
Trading screen rules & operation
Upstream, a number of trading screen rules support the robustness of the indices, such as:
- All participants must have a minimum number of reciprocal counterparty credit arrangements with other Market Members active in a particular market before they are allowed to post orders in a that market; this ensures that all orders have a reasonable chance of being transacted
- Changes to counterparty approvals are managed by GCHL to prevent the use of credit as a tool to gain an advantage on screen
- Related parties are prohibited from trading with each other
- Parties are anonymous on screen
- Credit mismatches can be resolved through the use of a third party acting as a credit sleeve
- Minimum 20 tonne cargoes are tradeable on screen
Front Office monitoring
GCHL's brokers are trained to monitor and detect suspicious activity on the platform, for example:
- Inverted markets
- Trading through the best bid / best offer
- Optionality limiting the potential for an order to realistically be traded
- Manipulation of credit arrangements to limit the potential for a company's order to realistically be traded
- Producer-to-producer activity causing an unusual rise in prices (or vice-versa for end-users)
- Bid/offer activity concentrated at times of low liquidity
Front Office can remove off-market bids and offers from the screen and must report suspicious activity to the Compliance Oversight Officer (COO).
Compliance Oversight Officer (COO) intervention
The COO will submit reports of suspicious activity to the FCA where necessary.
The COO can also:
- Exclude an index-qualifying order or transaction from the calculation if it is considered to be derived from potentially suspicious activity
- Issue formal warnings for suspected market misconduct
- Suspend traders and Market Members from participating on the platform
The COO is assisted by a Compliance Committee staffed by legal and compliance specialist.
GCHL is regulated by the UK's Financial Conduct Authority. Any abuse of the physical markets with a bearing in index formation is a criminal offence.
IOSCO Principles Compliance
Since 2016, GCHL complies with the IOSCO Principles for Financial Benchmarks (the 'IOSCO Principles'). This sturdy control and oversight framework ensures the quality and integrity of all of GCHL's index-related activities.
Every year, GCHL commissions an independent regulatory compliance consultancy to assess the extent to which GCHL complies with the Principles and with its own states procedures for managing its benchmarking activities.