Global regulators may need to tighten their rulebooks for commodity derivatives markets to ensure they operate transparently and free from abuse, the International Organization of Securities Commissions said.
IOSCO recommended supervisors use position limits, publication of open contracts and reporting of over-the-counter derivatives to tame commodity markets that operate in “disorderly conditions,” according to an e-mailed statement.
The principles “help to ensure that the physical commodity derivatives markets serve their fundamental price discovery and hedging functions, while operating free from manipulation and abusive trading schemes,” Masamichi Kono, chairman of IOSCO’s technical committee, said.
The Group of 20 Nations commissioned IOSCO to produce guidelines for commodity supervision last year. The use of derivatives to manipulate the price of foodstuffs and other raw materials is of “notable concern,” according to a European Union impact study on possible rules, as it can lead to “distorted” prices that harm the real economy.
Strict position limits would be overkill, Blythe Masters, head of global commodities at JPMorgan Chase & Co., wrote in an article distributed at the Eurofi financial forum in Wroclaw, Poland, today. She called instead for position “management” as a more effective solution.
Limits “would be a move in the wrong direction,” Masters said. “Position limits fundamentally undermine the flexibility needed to ensure that commodity markets function effectively.”
Alexander Justham, director of markets at the U.K.’s Financial Services Authority, called for stronger rules and a coordinated European campaign against market manipulation.
“Regulators must be given, and implement, formal position- management powers, including the authority to set position limits where appropriate,” Justham wrote in an article for the Eurofi conference.
Madrid-based IOSCO brings together national market regulators from more than 100 countries to coordinate rules and share information.
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