Global Market Overhaul Floated by Anti-Rigging German Regulator

Germany’s top financial supervisor proposed moving currency and commodities trading to regulated exchanges as concern about the rigging of market benchmarks spurs a backlash by governments.

“It would make it far easier to detect trading patterns that manipulate prices,” Elke Koenig, head of the Bonn-based Bafin banking regulator, said in a phone interview on Jan. 23. The idea is to move such transactions “as much as possible to transparent trading centers under state supervision, as is the case with securities.”

Koenig’s suggestion for an overhaul of the financial markets is the most radical since the Libor rate-fixing scandal set off global investigations. While “an admittedly very far-reaching idea,” she said it could be tackled in stages.

Attempting to assert control over spot markets jibes with Chancellor Angela Merkel’s aim of expanding oversight of financial markets, including so-called shadow banks, and Finance Minister Wolfgang Schaeuble’s call for no let-up in regulation, which led to a dispute with Deutsche Bank AG co-Chief Executive Officer Juergen Fitschen.

“The question of how to tighten oversight of benchmarks is a matter of intense discussion, particularly at the international level,” said Koenig. She said the topic is on the agenda of the Financial Stability Board, the Basel-based forum of regulators and central bankers from 24 advanced and emerging countries.

Policy makers “have to keep regulating” financial markets and not let up, Schaeuble said in Berlin on Dec. 5. A Finance Ministry declined to comment on Koenig’s proposal.

No Self-Regulation

Joaquin Almunia, the European Union’s antitrust chief, said on Jan. 24 the level of manipulation of market benchmarks is “impressive” and may include foreign exchange and some raw materials. Lawmakers in Merkel’s Christian Democratic Union party say the Libor scandal shows the need for stronger regulation of interest rates.

Manipulation of the $5.3 trillion-a-day foreign-exchange market and precious-metals prices may be worse than the Libor rigging, Koenig said in a speech in Frankfurt on Jan. 16.

“Anyone who placed their hope exclusively on self-regulation was taught a lesson,” she said in a Dec. 19 op-ed in the Boersen-Zeitung newspaper.

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