European Commission has released new plans to clamp down on financial speculation, proposing tighter controls on everything from betting on the price of commodities to high-frequency trading.
In a review of its Markets in Financial Instruments Directive (MiFID) legislation, EU officials want to curb speculation in areas such as government bond trading or commodities such as grain.
CityA.M. broke the news of the plans to launch this consultation on reforming MiFID earlier this week, after obtaining a copy of the consultation document.
City experts are concerned that the changes proposed will give European regulators unprecedented powers to control commodity markets, while investment banks face increased surveillance of their internal share and derivative trading platforms.
Michel Barnier, the commissioner in charge of EU financial reform, wants to beef up the powers of regulators to intervene when speculative positions in specific financial markets send grain prices spiralling, for example.
He will also tackle high-frequency trading, the millisecond buying and selling by computers of stocks and bonds that is suspected of triggering the flash crash in July, when US stock markets plunged only to recover within minutes.
As part of Wednesday's proposals, the Commission, the EU's executive, also launched a push to raise penalties across the region for financial crimes such as insider trading, and to force national regulators to name and shame offenders.
"This reform has been overdue because the markets broke down in the same way as banks did," said Sony Kapoor, a financial expert with London think tank Re-define. "So far the whole effort has focused on banks."
The Commission is leading a shake-up of financial services across the 27-country EU after what began as a freeze in bank lending led to recession, widening budget deficits and ultimately sucked whole countries into a debt crisis.
In the proposals officially launched today, which outline the shape of future European law, officials write of their desire to tackle "potential new risks that increased use of automated and high-frequency trading could pose to EU markets".
The rule change will also demand more information for regulators about trading prices in so-called "dark pools", where the price of a deal is published only after it has happened.