Exclusive: EU to back position limits on commods trades | Reuters

Exclusive: EU to back position limits on commods trades

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By Julien Toyer

GODOLLO, Hungary | Fri Apr 8, 2011 10:06am EDT

GODOLLO, Hungary

(Reuters) - Position limits could soon be imposed on European traders in commodities markets, according to a proposal set to be approved by EU finance ministers on Saturday, EU sources said on Friday.

The proposal -- which must be endorsed by EU finance ministers at an informal meeting near Budapest -- calls for greater transparency in commodities markets and linked derivatives markets, one of the sources said.

It also aims to crack down on market abuses and provide market regulators with access to information on individual traders and their positions.

"If necessary, these regulators must have the possibility to impose position limits. This is foreseen in the text (of the proposal)," the source said.

The EU approach is a step back from the "hardwire" position limits in commodities markets of the U.S. and instead gives supervisors powers to step in when they feel this is needed.

The proposal would still have to be turned into EU law to become applicable. This would be done under the revision of the bloc's securities trading rules known as MiFID which are being extended to cover commodities.

The EU's executive European Commission is due to table draft changes to MiFID in the summer with member states and the European Parliament having the final say.

Commodities have come under the spotlight as some politicians blame financial groups like hedge funds for "speculating" and helping to push oil and food prices to record highs during the past three years.

The effectiveness of position limits in Europe will hinge on whether they will be done nationally or centrally by the new EU watchdog, the European Securities and Markets Authority.

France wants ESMA to have such powers but Britain, the bloc's biggest commodities market, and other EU states are more cautious, an EU source said.

Britain leaves it up to exchanges to police abusive positions. "We would want to understand better what the benefits are to the market of additional powers over and above what we have," UK Financial Services Authority Chief Executive Hector Sants told Reuters last December.

Andreas Christiansen, chairman of the German Cocoa Trade Association which complained about "excessive speculation" in London cocoa futures last year, said position limits would prevent market manipulation and distortion.

"I hope these proposals will mean that commodities trading is freer from manipulation. Futures markets must provide a fair method of hedging for industry," Christiansen said.

SOFTER THAN UNITED STATES

Giving supervisors powers to impose position limits is a step removed from the U.S. approach which is to "hardwire" permanent limits into markets.

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