* Consultative paper asks for ideas to improve industry

* G20 expected to support IOSCO proposals

* New regulations could be in place within two years

By Christopher Johnson and Alex Lawler

LONDON, March 1 (Reuters) - Oil price reporting by industry media could be regulated in an attempt to prevent market manipulation and increase transparency for the world's biggest traded commodity, global regulator group IOSCO said on Thursday.

Price assessments for over-the-counter (OTC) oil trade and derivatives produced by industry reporters are used to settle billions of dollars worth of deals and to help settle trade on benchmark futures exchanges.

The International Organisation of Securities Commissions said reported prices were at risk of being manipulated by submission to the agencies of selective or false prices.

Under pressure to curb speculation blamed for huge swings in oil markets, the Group of 20 (G20) top economies last year asked IOSCO to look at the role of price reporting agencies (PRAs). The lead agencies are Platts, owned by McGraw-Hill, and privately-held Argus Media.

IOSCO recommended a range of ideas for physical oil market PRAs, including a possible independent regulator, which could be a step towards greater supervision of over-the-counter oil markets that are now lightly regulated by comparison with derivatives.

"The range of potential approaches to PRA oversight may realistically lie between recommending a form of self regulation to recommending a direct governmental regulatory system," IOSCO said in a consultation report.

An IOSCO official involved in preparation of the report said they expected the G20 to adopt some of the options in the IOSCO report when it meets in June in Mexico and new regulations could be in place within two years.

"It's not unlikely the G20 might look favourably at the idea of a form of regulation for price reporting. The G20 thinks this whole issue is important."

SAFEGUARDS

The IOSCO report highlighted a number of possible problems with oil price reporting. Sometimes assessments of oil prices were based on a very small number of trades, it said.

"The number of transactions in certain benchmark assessments can often be less than five and not infrequently there are no prices submitted," the report said.

Oil price reporting agencies now have no external body to ensure oversight of reporting standards, proper levels of transparency or other safeguards, it said.

Journalists at reporting agencies assess prices by calling up as many traders as possible and contacting them via instant messaging to ask where they see the market, trying to avoid pitfalls such as reflecting only a buyer's or seller's view.

That process has evolved over time and Platts and Argus publish their methodologies detailing how they assess prices.

In some markets, such as the North Sea market which sets the price of global oil benchmark dated Brent, many of the day's deals are done in a 30-minute period known as the "window," aimed at increasing transparency.

Even so, many other physical and derivatives oil deals are done bilaterally and are not captured by the window process, making some corners of the market relatively opaque. Oil traders in the physical markets are rarely permitted to speak to pricing agencies on the record.

Argus Media chairman and chief executive Adrian Binks said in a statement Argus had already contributed to a G20 mandated study of independent price reporting organisations:

"We are happy to continue to provide information and work with regulators and the industry to help ensure better understanding of how the physical markets are assessed."

Platts said in a statement it shared IOSCO's interest in transparent and efficient markets:

"The oil price reporting process which we have employed for nearly 20 years is a highly structured, transparent process."

IOSCO has asked for responses to its report from oil companies, banks, PRAs and other parties in the oil market by March 30. Platts said it expected to submit comments to IOSCO.

Initial reaction to the IOSCO paper was cautious.

One veteran dealer in London with a large oil brokerage, who declined to be identified, said the current system for reporting oil trades was "pretty robust".

"There's room to tweak the system but you don't want to make it more cumbersome and expensive," he said.

A second dealer with many years' experience trading gasoil, who also declined to be identified, said increased transparency would provide a better deal for consumers, and rules could help to encourage that.

"At the moment you get (major oil companies) trading a million tonnes of paper and it's completely invisible," the dealer said. "You need government legislation to get limits on size."

IOSCO members regulate more than 95 percent of the world's securities markets in more than 100 countries, including the U.S. Securities and Exchange Commission, Britain's Financial Services Authority and Japan's Financial Services Agency.

Thomson Reuters competes with Platts and Argus in providing news and information to the oil markets.

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