EU May Toughen Commodity Swaps Curbs in Financial Rules

Commodity derivative speculators may face tougher curbs under compromise plans to overhaul the European Union’s financial market rules.

Governments may seek to restrict the number of commodity- derivative contracts that traders can enter into, according to a draft version of the rules prepared by Cyprus, which holds the rotating presidency of the EU. Such a requirement would go beyond a draft law published last year by Michel Barnier, the EU’s financial services chief.

The position-limit rule wouldn’t apply in cases where businesses are trying to use the derivatives to shield themselves from losses on investments, according to the documents. Regulators would also have some, limited power to grant other case-by-case exemptions.

Aid organizations and some governments, including France and Germany, have demanded restrictions on commodity derivatives speculation, which they blame for worldwide spikes in food prices. The Institute of International Finance, an association representing global lenders, has said there is “little convincing evidence linking financial investment with trends in commodity prices and volatility.”

Barnier’s proposals, published last year, would have given regulators the chance to find alternatives to position limits.

Tougher Measures

Speaking to lawmakers in the European Parliament today, Barnier said he backed moves to toughen the planned measures for commodity derivatives.

Barnier plans to “reinforce our system of position limits, while maintaining the possibility for businesses to use these markets for hedging purposes,” the commissioner said at the parliament’s headquarters in Strasbourg, France.

Still, the Cypriot plans, dated Oct. 22, would weaken his proposals to boost securities-clearing competition. The draft proposals would add conditions that must be met before an exchange can be forced to hand over trading data to a competing clearinghouse.

While the U.K. has strongly backed the original proposal, which Barnier argues would cut costs for investors, Germany and France have both warned that the plan risks fragmenting markets and harming financial stability.

The Cypriot plans follow along the lines of a negotiating position approved by European Parliament lawmakers last month and scheduled to be voted on by lawmakers tomorrow.

“I’m convinced that we need to create the conditions for healthy competition in the post-trade market,” Barnier said today.

The step is needed “to create a real single market for financial services and prevent an excessive concentration of risks within monopolistic market infrastructures,” he said.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net