A new consultation on the European Commission’s markets in financial instruments directive (MiFID) is pushing for greater regulation of trading platforms for shares, bonds and derivatives.
In commodity markets, it would force traders in both exchange-traded and over-the-counter derivatives to reveal their positions and give regulators the power to cap these if deemed unsafe, or even ban trading in a particular product altogether.
Europe’s move follows similar US proposals to curb price spikes in key commodities such as grain, cocoa and oil, which it blames on speculators.
But as the most liquid market in Europe for many commodities, London stands to lose out most from the planned restrictions in trading.
Michel Barnier, the EU commissioner in charge of the reforms, said yesterday that “if someone is doing something which affects the market then he or she must be held to account. Hyper-speculation is scandalous.”
The wide-ranging MiFID reforms propose making all derivatives eligible for clearing – including commodities – trade on electronic platforms, forcing bank-to-bank trading out in the open.
It would give EU regulators “complete powers to manage and control positions in commodity derivatives more rigorously” to “reduce systemic risk and combat disorderly trading,” according to the consultation.
Industry figures reacted with dismay.
“Complaints that speculation leads to market manipulation misunderstands what drives the commodity markets, which is fundamental demand and supply,” said Andrew Moorfield, head of oil and gas at Lloyds Banking Group.
Rob McIvor, communications director at the Association of Financial Markets in Europe, described the proposals as “a blunderbuss approach”.
“One person’s speculation is another’s investment strategy. This definition could pick up on perfectly legitimate trading,” he said.
Syed Kamall, MEP for London, said that over-regulating European financial markets could cause investors to take their money elsewhere. “If these bans are necessary – and I’m not convinced – we need to make sure the decisions stay in London and out of Brussels,” he said.
In a separate consultation yesterday, Brussels proposed toughening penalties across the EU for rule breaches in the financial services sector.