France proposes EU commodities markets regulation

By Sybille de La Hamaide and Marc Joanny

PARIS (BestGrowthStock) – France has sent detailed proposals to the European Commission calling for common action to regulate volatile commodities markets before it is due to head the Group of 20 economic powers, ministry officials said.

President Nicolas Sarkozy said last week that regulating commodity derivatives would be one of the priorities of France’s presidency of the G20 starting in November for a year.

France’s economy, energy and agriculture ministers sent a letter to three European commissioners on August 27 stressing that current European regulation was not enough and calling for coordinated and cross-sector EU action.

“At a time when commodities markets are more and more financial, the European regulation of commodity derivatives markets appears insufficient to us,” the ministers wrote in a letter made public by the economy ministry.

The derivative markets cited in France’s proposals include grains and other raw agricultural products, metals, oil, gas and CO2 quotas.

European commodity markets are under pressure to tighten regulation as the United States pushes forward with plans to tame speculative activity, which was blamed by some for boosting food and energy prices to record highs in 2008. [nCFTCREG]

G20 IN SIGHT

France wants the EU to adopt new legislation to improve its own system but also hopes to convince its European counterparts to put forward a joint proposal at the G20.

“The G20 is of course the relevant framework to tackle the issue of commodities markets as a whole,” a ministerial document on the regulation of commodities markets said.

“One of the objectives of France’s 2010-2011 presidency could notably be the passing of fully operational principles to regulate commodities markets, which would then have to be transposed at national level,” it added.

In February farm ministers from the Organization for Economic Co-operation and Development (OECD) failed to produce concrete measures on market regulation at a meeting on price volatility as differences surfaced on several issues including the role of speculation in price swing.

Paris-based European milling wheat futures, for example, gained more than 60 percent in the five weeks to August 5 on record volumes traded as drought ravaged crops in Russia, the world’s third-largest grain exporter.

Some of the trades were done by industry players covering their needs, but a significant part also came from speculators betting on a rise in prices, an official said.

“It is essential that Europe commits fully to the regulation of these markets and that it does so now,” a ministerial note detailing the proposals said, stressing that only a portion of commodity derivatives are subject to financial regulation.

SUPERVISOR

Some regulators such as the U.S. Commodity Futures Trading Commission (CFTC) have already started to look into ways to rein in speculation in energy and commodity trading.

In Europe, cocoa industry participants complained to the NYSE Euronext.Liffe exchange last month about the extent of speculation and lack of transparency in London’s Liffe market, which analysts saw as a possible start for the introduction of tougher rules.

France’s proposals are wide but include limiting positions in derivative markets, increasing transparency notably on the identity of market participants and movements.

It also set out guidelines for an efficient European supervisory trading system for commodity derivatives to regulate those markets.

One option could be to create a European counterpart to the CFTC but the creation of another financial regulator next to the European authority for financial markets could cause confusion, officials said.

Another and maybe simpler option could be to increase powers of the European authority for financial markets itself to include commodity derivatives.

“This option has the advantage of building on foundations which have already been laid,” said the note, which insisted on a coordinated action at EU level.

(Editing by Muriel Boselli and William Hardy)

France proposes EU commodities markets regulation