May 20, 2015 / 12:51 PM / 5 years ago

Shell joins BP in calls against excessive trading regulation

LONDON, May 20 (Reuters) - Royal Dutch Shell joined fellow oil company BP on Wednesday in calling on European regulators to refrain from imposing stricter capital requirements and greater disclosure measures on oil trading.

Last month, the head of BP’s trading division Paul Reed said some markets could be exposed to severe stress because of some looming EU regulations.

Mike Muller, vice president for trading at Shell, sided with Reed’s views on Wednesday, saying regulators would achieve undesired effects if companies and trading houses were forced to follow stricter capital requirement rules or be limited in their ability to trade derivatives.

European authorities will implement a set of regulations known as the Markets in Financial Instruments Directive (Mifid II) in 2017, which contains capital requirement directive (CRD IV) aimed at cutting systemic risks across equity, fixed income and commodity markets.

“They (trading desks at trading houses and oil majors) don’t operate banking licences... They are not involved in lending activity... A failure of a commodity firm is unlikely to lead to a bank run...,” Muller told the Platts Crude Summit in London.

Both BP and Shell trading divisions employ hundreds of people and trade millions of barrels of oil and refined products per day. Shell will become even bigger when it finalises its acquisition of smaller rival BG.

Earlier this year, trading house Trafigura funded research which said that if Europe decided to impose new capital requirements on traders, they would be forced to shrink and deleverage, ultimately making commodity prices more expensive.

Muller also called against introducing limits on derivatives trading - known as position limits - across the industry.

He said position limits should be applied only to speculative players rather than those who trade physical commodities as they need derivatives for hedging.

But he also said that hedging at companies such as Shell is often done upfront, even before the physical position is taken, which makes smart regulations an even more challenging task.

“Unattractive regulations would will force companies to flee,” he said. (Reporting by Dmitry Zhdannikov, editing by David Evans)

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