The European Commission has said it intends to use a its plan to reform financial markets to rein in speculation on commodities markets, notably by reinforcing controls and extend the market abuse legislation.
The European Commissioner in charge of financial reform services Michel Barnier made the announcement in the opening speech of a conference on the revision of the Market in Financial Instruments Directive (MiFID) in Brussels, along with his colleague, EU Agriculture Commissioner Dacian Ciolos.
“The revision of MiFID is one of the key elements of an ambition reform of the raw materials markets,” the EU’s financial markets chief said, stressing that commodities markets regulation was a high on his agenda.
“We are ready to go further. This is a key issue. We will not hesitate to consider further measures,” Barnier, a former French farm minister, also said.
European commodity markets are under pressure to tighten regulation as the US pushes forward with plans to tame speculative activity, which was blamed by some for boosting food and energy prices to record highs in 2008.
The EU’s executive had unveiled a blueprint on Wednesday to curb or ban short-selling and tighten controls on derivatives in one of its most ambitious financial reforms since the economic crisis unfolded, but it was unclear how the EU intended to tackle the issue of volatile commodities markets.
European wheat futures gained more than 60 percent in the five weeks to August 5 on record volumes as drought-hit Russia, the world’s former third-largest grain exporter, banned its exports and other major producers, including Ukraine, also suffered from drought.
Position limits
At the conference Dacian Ciolos, said he wanted the EU executive’s plan to specifically include the issue of position limits on futures markets.
“We need to go further, especially today on the issue of position limits to counter excessive movements,” he said.
“The role of futures market is not to feed speculation and some actors’ profits. The role of futures markets is to offer tools to anticipate, manage volatility and contribute to the matching of supply and demand,” he said.
Barnier said the MiFID review would create the opportunity to strengthen the transparency, give a better framework for organised markets and increase controls on the activity of the various players in these markets, the speech said.
But the Commission also intends to review the market abuse directive and extend its field of action to strengthen how raw materials markets are controlled and supervised.
Finally, Barnier said the Commission wants the new European authority for securities markets to play an important role in how these markets operate, notably by ensuring that common rules for their functioning are established and that there is a coordinated and homogenous supervision of these rules in Europe.
His comments come after France sent detailed proposals to the Commission on August 31 calling for common action to regulate volatile commodities markets before it is due to head the Group of 20 economic powers.
In an interview with reporters on September 10, France’s Farm Minister Bruno Le Maire said speculators may have inflated EU wheat futures prices by as much as a third, as he touted the benefits of position limits as a possible part of the country’s push to toughen commodity market regulation.
Ciolos agreed fundamental parameters such as lower supplies from Ukraine and Russia could not explain recent wheat price movements alone.
“I’m not here to put finance on trial. But finance must serve the real economy,” he said.
