* 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 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
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
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