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Barnier Will Focus on Commodities Trading, Basel on U.S. Trip

Michel Barnier, the EU's internal markets commissioner
Michel Barnier, the European Union's internal markets commissioner, said last month there is “anger” in Europe directed at “people who are prepared to abuse the commodities market with hyper-speculation” “In my view it’s scandalous”. Photographer: Hannelore Foerster/Bloomberg

European Union Financial Services Commissioner Michel Barnier will meet with U.S. officials this week in a bid to avoid clashes with American regulators over new rules for commodities and derivatives trading.

Barnier will have two meetings with Gary Gensler, the U.S. Commodities and Futures Trading Commission chairman, and is scheduled to spend part of the six-day trip at the Chicago Mercantile Exchange. He’ll also meet with U.S. Treasury Secretary Timothy F. Geithner for talks on global capital requirements.

The EU is planning an overhaul of derivatives rules and has proposed fines for traders that don’t report details of their contracts and measures to force more transactions through central clearinghouses. The U.S. in July adopted the Dodd-Frank Act, which gave Gensler’s agency the ability to establish rules governing the $615 trillion over-the-counter derivatives market.

The EU is concerned that tougher U.S. rules “could lead to regulatory arbitrage,” Eddy Wymeersch, the former chairman of the Committee of European Securities Regulators, said in a telephone interview. “Would we want a situation where all derivatives trading in Europe would come from the U.S.? I don’t think so.”

Barnier has said the EU rules may seek to crack down on options trading and the build-up of large positions that lead to volatility.

‘Scandalous’ Speculation

Wheat traded in Chicago, a global benchmark, almost doubled in price between July and September as a drought in Russia, flooding in Canada and parched fields in Kazakhstan and the European Union, ruined crops.

Dacian Ciolos, the EU’s agriculture commissioner, said the price spike was “disproportionate” at the time and blamed market speculation.

There is “anger” in Europe directed at “people who are prepared to abuse the commodities market with hyper-speculation,” Barnier said in a speech in Brussels last month. “In my view it’s scandalous.”

Barnier is also reviewing the 27-nation bloc’s Markets in Financial Instruments Directive, or Mifid, as part of a wider overhaul of financial regulation following the worst financial crisis since the Great Depression. The European Commission is scheduled to make a full legislative proposal by March.

“During the financial reform debate in the U.S. there was considerable discussion about the role of speculation,” Steve Hinkson, director of communications for the Managed Funds Association in the U.S. said in a telephone interview. “Our view is that speculation, in and of itself, isn’t pejorative.”

Potential for Abuse

The “potential for abuse in markets” can be reduced by increasing transparency and “other measures, like centralized clearing and segregation of collateral,” Hinkson said.

Barnier’s first visit in May was aimed at harmonizing financial regulation between the U.S. and EU on bank supervision, capital requirements and hedge funds.

Barnier also plans to meet with Geithner and Federal Reserve Chairman Ben S. Bernanke during the trip which starts today and includes stops in New York and Washington, according to the EU’s website.

Barnier must use the visit to secure commitments from the U.S. that it will implement bank capital rules agreed last month by the Basel Committee on Banking Supervision, Othmar Karas, the European Parliament’s chief lawmaker on Basel issues, said in an interview.

“We have to find an agreement with the U.S. on a common implementation date,” Karas said. European banks won’t have a “level playing field” if the U.S. doesn’t implement the rules, Karas said.

Geithner and Barnier agreed that tougher bank regulation should lead to “broadly equivalent outcomes” on both continents following the European commissioner’s last visit to Washington.

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