Limits put on use of financial instruments linked to agricultural commodities, which have been blamed for food price rises
Development activists have given a guarded welcome to moves by the European Union to curb food speculation by limiting the use of financial instruments linked to commodities, which has been blamed for the rise in food prices.
The controls will place a limit on the number of contracts on agricultural commodities such as wheat, corn, soybean and sugar that banks and other finance companies can hold, and will force traders to open their activities to greater public scrutiny.
The European commission, the EU's executive arm, said the rules on agricultural derivatives would "contribute to orderly pricing and prevent market abuse, thus curbing speculation on commodities and the disastrous impacts it can have on the world's poorest populations".
The rules also seek to ban unregulated trading and establish tighter rules for high-frequency trading, which some blame for increasing volatility. High-frequency trading, which involves computers making split-second decisions based on mathematical models, has become increasingly widespread in financial markets.
Representatives of the EU's 28 governments and European members of parliament struck the deal on the outlines of the so-called Markets in Financial Instruments Directive, or Mifid, in a late-night session in Strasbourg. The legislation is part of the overhaul of financial regulation amid the crisis.
Michel Barnier, the European commissioner responsible for financial regulation, said the new rules were a "key step toward establishing a safer, more open and more responsible financial system and restoring investor confidence".
The World Development Movement (WDM), the anti-poverty group, described the decision as a historic step forward, but said the UK government's opposition to tough controls had resulted in serious loopholes in the regulation. In particular, limits will be set at national, rather than EU level, which campaigners say risks a regulatory "race to the bottom" as countries could compete to set weaker limits.
"Public outrage over food speculation has been huge, and the fact that the EU has listened to that anger is a victory for public pressure," said Nick Dearden, director of the WDM. "But the UK's role in watering down the regulation has been a disgrace. The Treasury has put the profits of banks like Goldman Sachs above the basic human need for food, with the result that the new rules could be too weak to be effective. [The] agreement is a good step forward, but now we need to make sure the limits are set at a level that properly tackles excessive speculation."
France and Germany have led the drive to curb speculation on commodities, but the UK has fought a rearguard action because of its scepticism on the effectiveness of trading limits. In a paper last year, Britain argued that the commission's proposal to puts a disproportionate and damaging focus on position limits … Inflexible limits are a blunt instrument."
But Oxfam said the agreement marked a good start in tackling gambling on food prices. "[It] introduces limits on speculating in spite of attempts by the UK and other governments to block any meaningful reform," Oxfam's EU policy adviser, Marc Olivier Herman, said. "Limits to the bets that speculators can make will apply to contracts traded 'over the counter' and throughout the lifetime of the contracts. This is good news for millions in the developing world, who can spend up to 75% of their income on food, as well as producers who rely on stable food prices. It is also important for people across Europe struggling to cope with high and volatile prices."
Position limits cap the number of contracts in a particular commodity that can be held by a trader or group of traders, preventing concentration by the individual or group concerned, but the text adopted imposes position limits only on net positions (the difference between contracts bought and sold) rather than on the amount of contracts, and will not apply to all contracts.
There has been much debate on whether speculation on commodities has led to food price rises since 2008. Olivier de Schutter, the UN rapporteur on the right to food, believes speculation is behind the surging prices. The increase in the prices of wheat, maize and rice in past years, he has argued, was not linked to low stock levels or harvests but to traders reacting to information and speculating on the markets.
The agreement reached between the European parliament and the EU's council of ministers will have to be formally approved by both institutions in the coming months. This is expected to happen before the elections of the European parliament in May.
Barclays, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley together made an estimated £2.2bn from speculating on food, including wheat, maize and soy, between 2010 and 2012, according to WDM. Reported by guardian.co.uk 7 hours ago.
Development activists have given a guarded welcome to moves by the European Union to curb food speculation by limiting the use of financial instruments linked to commodities, which has been blamed for the rise in food prices.
The controls will place a limit on the number of contracts on agricultural commodities such as wheat, corn, soybean and sugar that banks and other finance companies can hold, and will force traders to open their activities to greater public scrutiny.
The European commission, the EU's executive arm, said the rules on agricultural derivatives would "contribute to orderly pricing and prevent market abuse, thus curbing speculation on commodities and the disastrous impacts it can have on the world's poorest populations".
The rules also seek to ban unregulated trading and establish tighter rules for high-frequency trading, which some blame for increasing volatility. High-frequency trading, which involves computers making split-second decisions based on mathematical models, has become increasingly widespread in financial markets.
Representatives of the EU's 28 governments and European members of parliament struck the deal on the outlines of the so-called Markets in Financial Instruments Directive, or Mifid, in a late-night session in Strasbourg. The legislation is part of the overhaul of financial regulation amid the crisis.
Michel Barnier, the European commissioner responsible for financial regulation, said the new rules were a "key step toward establishing a safer, more open and more responsible financial system and restoring investor confidence".
The World Development Movement (WDM), the anti-poverty group, described the decision as a historic step forward, but said the UK government's opposition to tough controls had resulted in serious loopholes in the regulation. In particular, limits will be set at national, rather than EU level, which campaigners say risks a regulatory "race to the bottom" as countries could compete to set weaker limits.
"Public outrage over food speculation has been huge, and the fact that the EU has listened to that anger is a victory for public pressure," said Nick Dearden, director of the WDM. "But the UK's role in watering down the regulation has been a disgrace. The Treasury has put the profits of banks like Goldman Sachs above the basic human need for food, with the result that the new rules could be too weak to be effective. [The] agreement is a good step forward, but now we need to make sure the limits are set at a level that properly tackles excessive speculation."
France and Germany have led the drive to curb speculation on commodities, but the UK has fought a rearguard action because of its scepticism on the effectiveness of trading limits. In a paper last year, Britain argued that the commission's proposal to puts a disproportionate and damaging focus on position limits … Inflexible limits are a blunt instrument."
But Oxfam said the agreement marked a good start in tackling gambling on food prices. "[It] introduces limits on speculating in spite of attempts by the UK and other governments to block any meaningful reform," Oxfam's EU policy adviser, Marc Olivier Herman, said. "Limits to the bets that speculators can make will apply to contracts traded 'over the counter' and throughout the lifetime of the contracts. This is good news for millions in the developing world, who can spend up to 75% of their income on food, as well as producers who rely on stable food prices. It is also important for people across Europe struggling to cope with high and volatile prices."
Position limits cap the number of contracts in a particular commodity that can be held by a trader or group of traders, preventing concentration by the individual or group concerned, but the text adopted imposes position limits only on net positions (the difference between contracts bought and sold) rather than on the amount of contracts, and will not apply to all contracts.
There has been much debate on whether speculation on commodities has led to food price rises since 2008. Olivier de Schutter, the UN rapporteur on the right to food, believes speculation is behind the surging prices. The increase in the prices of wheat, maize and rice in past years, he has argued, was not linked to low stock levels or harvests but to traders reacting to information and speculating on the markets.
The agreement reached between the European parliament and the EU's council of ministers will have to be formally approved by both institutions in the coming months. This is expected to happen before the elections of the European parliament in May.
Barclays, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley together made an estimated £2.2bn from speculating on food, including wheat, maize and soy, between 2010 and 2012, according to WDM. Reported by guardian.co.uk 7 hours ago.