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The European Commission is hoping to inject more transparency into Europe's financial markets by tightening up the rules governing speculation in the commodity market — partly blamed for the rise in global food prices — as well as high frequency trading, which has been blamed for some market volatility.
“The crisis serves as a grim reminder of how complex and opaque some financial activities and products have become,” said the Commissioner for Internal Market and Services, Mr Michel Barnier, tabling the revisions of the commission's Markets in Financial Instruments Directive, which came into effect in 2007. The proposals must be passed by individual member-states as well as the European Parliament.
Among the proposals are a stricter regulatory framework for the commodity derivatives market. Regulators will be able to ban specific products, services or practices “in case of threats to investor protection, financial stability or the orderly functioning of markets,” said the commission in a statement.
The Commission plans to give domestic regulators the power to monitor and intervene at any stage in trading activity, it added.
Regulations governing high frequency traders will also be strengthened, and rules to prevent them from adding to volatility by moving in and out of markets will be introduced, the Commission said.
Loopholes
The changes have so far elicited a cautious response. Campaign organisation the World Development Movement warned that the proposals offered “loopholes” which would prevent them from having the intended impact on food prices.
Us move
Europe's move follows that of the US, where the Commodity Futures Trading Commission this week introduced limits on trading in commodity derivatives, including the number of contracts held by a firm.
In Europe, the issue has been championed by the French President, Mr Nicholas Sarkozy, who holds the Presidency of the G-20 and has made tackling instability in commodity prices one of the group's priorities for 2011.
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