EU policy-makers grapple with scope of commodity trade law

Wed Oct 2, 2013 12:39pm EDT

Related Topics

* New round of negotiations set for Oct. 9

* Commission says aiming for political deal before year-end

* Commodity traders say too much scrutiny can backfire

By Barbara Lewis

BRUSSELS, Oct 2 (Reuters) - European Union policy-makers have alarmed traders with plans to impose size limits on physical commodity deals, a step campaigners say is needed to crack down on speculators blamed for pushing up food and energy prices.

The proposed changes to EU rules that could come into effect from next year would deal a shock to multi-trillion dollar markets used to trading beyond regulatory scrutiny.

They would come about as part of a revised law known as markets in financial instruments directive (MiFID), which will apply across all countries in the 28-member bloc.

Lawmakers and EU countries are grappling over how strictly they should define limits on trading positions and whether they should apply to physical, over-the-counter contracts.

"It would appear appropriate to specify in technical standards that deliverable supply is to be used as a measure for physically-settled contracts," an internal Commission document seen by Reuters said.

EU policy-makers are also debating whether the bloc should have a commitment of traders report, as in the United States, to show the proportion of institutions, speculators and commercial players in the market.

For decades, over-the-counter commodities trade has escaped regulatory supervision and dealers complain unnecessary scrutiny could kill liquidity.

"The risk is it will capture physically settled forward trades," Mark Dalton, director of regulatory affairs at BG Group, said at a conference in Brussels this week. He did not elaborate.

Diego Valiante, a research fellow at the Centre for European Policy Studies, said the extension of MiFID to include physical contracts, such as forward contracts on the London Metals Exchange or on the oil markets, was not necessarily a bad thing.

"Whether this is bad or good it is difficult to say. With some exemptions, it might be the best option at the moment to regulate some highly liquid contracts that are not captured by any regulation at the moment," he told Reuters.

A Commission official said the next round of negotiations between the European Parliament, the European Commission and representatives of member states would be on Oct. 9, with a view to getting a political deal before the end of the year.

Other regulatory efforts could take much longer.

The Commission only announced last month proposals to clamp down on benchmark rigging, which officials have said might not be agreed before 2015. (Additional reporting by Huw Jones in London; editing by James Jukwey)

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