Bloomberg News

Commodity Derivatives Rules May Be Toughened by EU Lawmakers

March 27, 2012

European Union lawmakers may seek to toughen planned curbs on speculation with commodity derivatives as part of an overhaul of financial-market rules.

Markus Ferber, the lawmaker leading work on the measures in the European Parliament, is proposing to force venues to limit the number of commodity-derivative contracts that traders can enter into, according to a report sent by his office. The requirement would go beyond a draft law published last year by Michel Barnier, the EU’s financial services chief.

Barnier’s proposals need “some adjustment and strengthening,” Ferber’s report says. The EU must act to “reduce systemic risk and to ensure financial-market stability.”

Politicians including French President Nicolas Sarkozy have demanded restrictions on commodity derivatives speculation, which they blame for spikes in world food prices. The Institute of International Finance, an association representing global lenders, has said there is “little convincing evidence linking financial investment with trends in commodity prices and volatility.”

Barnier last year proposed an overhaul of the EU’s market legislation, known as Mifid, in a bid to plug regulatory gaps exposed by the financial crisis that followed Lehman Brothers Holdings Inc. (LAH:US)’s 2008 collapse.

His draft law would require venues handling commodity derivatives to either cap the number of contracts that traders can enter into -- a so-called position limit -- or enforce “alternative arrangements.”

Such alternatives should be “an addition, not an alternative, to the use of position limits,” Ferber said in the report. Still, some exemptions should be granted to traders using the derivatives to hedge risks on investments, according to the report.

Lawmakers in the EU Parliament and national governments must approve the draft law before it can come into effect. The plans were discussed today by officials from the region’s 27- nations, according to a statement on the EU’s website.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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