globalCOAL has made changes to its fixed price physical market for Richards Bay coal (RB1). As of 15 June 2015, all bids, offers and trades will be limited to multiples of 25,000 mt.

globalCOAL canvassed its members on the change after receiving complaints from them regarding bidding activity in unusual clip sizes. Press reports suggest a concern in the market that high bids for non-standard volumes for RB1 coal, which sellers could not in fact deliver, were artificially forcing up prices.

This practice was reported as affecting and undermining confidence in the API4 price as a benchmark, which suffered a knock-on effect as a result.

The change will be implemented on the globalCOAL platform over the weekend of 13 - 14 June 2015, and will then remain in place until the end of December 2015, following which globalCOAL will re-examine the functioning of the market.

Our understanding is that index-linked prices will still, however, be capable of being traded on the globalCOAL screen in bespoke cargo sizes above 25,000 mt. Likewise, trades conducted on SCoTA terms but off the globalCOAL platform will be unaffected by the rule change.

Contracts traded on the globalCOAL platform are not currently directly covered by the UK market-abuse regime. But this does not mean that manipulative behaviour in this market is outside the scope of sanctions for market abuse. API4 is used as a pricing reference for at least one contract (the ICE Futures Richards Bay Coal Futures Contract), which is directly covered by the UK market-abuse regime. As a result, market abuse that occurs in relation to "anything that is the subject matter" of that contract could be caught by the regime.

In addition, FCA-regulated entities trading in this market that are judged to fall below proper standards of market conduct could face FCA enforcement action for breach of FCA principles, even where no offence has been committed under the market-abuse regime.

The regulatory risks relating to market manipulation in commodity markets are going to increase with the Market Abuse Regulation (596/2014/EU) coming fully into effect in July next year.

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