September 7, 2010
 

France urges commodity market regulation

France has sent proposals to the European Commission calling for common action to regulate increasingly volatile commodities markets, said ministry officials.

When addressing a diplomats' conference in Paris, President Nicolas Sarkozy said that regulating commodity derivatives would be one of the priorities of France's presidency of the G20 starting in November.

France's economy, energy and agriculture ministers sent a letter to three European commissioners on August 27 stressing that current European regulation was insufficient and calling for coordinated and cross-sector EU action.

"At a time when commodities markets are more and more financial, the European regulation of commodity derivatives markets appears insufficient to us," the ministers wrote in a letter made public by the economy ministry.

The derivative markets cited in France's proposals include grains and other raw agricultural products, metals, oil, gas and CO2 quotas. Excessive speculation has been blamed for sending oil and agricultural prices to record highs in 2008, prompting food riots in some developing countries.

Since then, volatility has prevailed in most of these derivatives markets. Paris-based European milling wheat futures, for example, gained more than 60% in the five weeks to August 5 on record volumes traded as drought ravaged crops in Russia, the world's third-largest grain exporter. Some of the trades were done by industry players covering their needs, but a large part also came from speculators betting on a rise in prices, an official said.

"It is essential that Europe commits fully to the regulation of these markets and that it does so now," a ministerial note detailing the proposals said, stressing that only a portion of commodity derivatives are subject to financial regulation.

France's proposals include limiting positions in derivative markets, increasing transparency notably on the identity of market participants and movements. The country also set out guidelines for an efficient European supervisory trading system for commodity derivatives to regulate those markets. One option could be to create a European counterpart to the US Commodity Futures Trading Commission, but the creation of another financial regulator next to the European authority for financial markets could cause confusion, officials said.

Another and maybe simpler option could be to increase powers of the European authority for financial markets itself to include commodity derivatives. "This option has the advantage of building on foundations which have already been laid," said the note, which insisted on a coordinated action at EU level.