Commodity traders in the European Union may face restrictions including position limits under proposals from the European Commission aimed at curbing excessive price volatility.
Curbing the proportion of a commodity derivatives market that a single trader can control may help rein in “excessive speculation,” the commission said in an e-mailed statement. Price fluctuations hurt farmers, food-makers and consumers, including in the poorest countries, the commission said.
“We need regulators to keep a closer eye on positions taken up in respect of commodity derivatives,” Michel Barnier, the EU’s financial services chief told reporters in Brussels today. “This will include the possibility of introducing position limits if necessary,” he said. “Personally speaking I believe in this.”
French President Nicolas Sarkozy said in Davos last week that speculation was driving up food prices. World food costs rose to a record in December on higher costs for sugar, grain and oilseeds, according to a United Nations report earlier this month, contributing to the uprising that ousted Tunisia’s Zine El Abidine Ben Ali on Jan. 14. Protests have spread to Egypt, Algeria, Morocco and Yemen.
The possible trading measures are included in a strategy paper published today by the commission on commodities markets and raw materials.
The commission, the 27-nation EU’s executive arm, said it plans to identify “priority actions” to ensure access to 14 “critical” raw materials. This list includes so-called rare earths -- a group of 17 chemically similar materials used in renewable energy, magnets, electric cars and weapons.
Position limits restrict the relative share of the market occupied by one investor. Such limits should take account of “the specificities of the different types of derivative products,” and the “evolution of the physical market of the relevant commodity,” the commission said.
Restrictions could be applied to derivatives both traded on exchanges and over the counter, the commission said. Barnier said the EU executive is examining whether to apply them to “real” markets as well as derivatives.
Measures will be included in draft laws on market abuse and transparency of securities transactions that the commission plans to present “before the end of the summer,” Barnier said.
Investment funds “have a lot of clout and if they put themselves on one particular side of the scale then that is going to affect markets and prices,” said Dacian Ciolos, the EU’s agriculture commissioner.
One “possible reason for volatility is because there is a lack of transparency,” Ciolos said.