Denis Naughten
Question:10Deputy Denis Naughten asked the Minister for Finance the steps being taken to regulate food securities trading on the stock market; and if he will make a statement on the matter. [5519/12]
View answerWednesday, 1 February 2012
Questions (10)
Oral answers (4 contributions)
As I indicated in my reply to this question from the Deputy on Tuesday, 15 November 2011, my understanding is that the Deputy is referring to trading in futures in foodstuffs, such as wheat, on stock markets and the need to have a regulatory framework in place to deal with these trades. A regulatory regime for these types of trades was set down in the 2004 Markets in Financial Instruments Directive, which was transposed into Irish law by the European Communities (Markets in Financial Instruments) Regulations 2007, SI 60 of 2007.
Part 3 of Schedule 1 of the statutory instrument provides a list of the financial instruments within the scope of the regulations. Paragraph 8 of that part refers to "options, futures, swaps, forward rate agreements and any other derivative contracts" and sets down specific circumstances where these apply. Similar provisions should be in place in all member states. The scope of this paragraph is wide-ranging and includes derivative contracts in commodities such as foodstuffs. Although rules are in place for this type of trading in Ireland, in practice there is little prospect of them being implemented because currently there are no commodities exchanges established in Ireland, either as part of the Irish Stock Exchange or elsewhere.
In order to keep pace with trends in derivatives trading, and in line with G20 commitments, a proposal to extend the scope of market abuse regulation, so that it includes derivatives trading, has recently been adopted by the Commission and is being negotiated at Council working group level. A revision of the Markets in Financial Instruments Directive, with a view to improving transparency and accountability in securities trading, is also being negotiated at Council working group level.
A Commission proposal for a regulation, which is now nearing agreement, addresses trades in derivatives that are conducted away from exchanges, in other words, over the counter. The outcome of this negotiation will include reporting and clearing obligations for these trades, leading to more transparency and control over derivatives, including food derivatives. When finalised, these EU legislative initiatives will come into force in all member states. The Central Bank of Ireland is the competent authority in this country for the purposes of derivatives legislation.
I wish to focus on the role of the Minister for Finance as a member of ECOFIN. The EU market and financial instruments directive is currently being discussed. There is a strong lobby for light touch regulation in this area and the Minister knows where light touch regulation has got us in this country. Is the Minister satisfied with the level of regulation in the sector? Is he aware that speculators have increased their role in trades in the food market by 500% over the past 15 years? Spectators are taking money out of the pockets of Irish farmers, leading to food shortages in developing countries, and costing Irish families an additional €300 a year in food bills. As a member of the ECOFIN, will the Minister push for position limits to be put in place as part of the review of the directive, rather than position management, which is the light touch regulation that lobbyists seek? This will lead to food security being jeopardised, not just for Irish farmers and in Europe, but throughout the world.
The Deputy knows more about this area than I do because he has taken a special interest in it. As part of the post-crisis reform agenda, the European Commission has made several proposals affecting investment, particularly derivatives. I can provide the Deputy with a briefing note on that point. I was not aware of the extent of the concern in the farming community and the growth in trading derivatives. A family in a poor community in a developing country needs food but to an investor in the Chicago commodities exchange, food is just another commodity on which one makes money. The balance has been struck and I am satisfied there is a satisfactory process under way in Europe to provide strong regulation. I will input what the Deputy said to the working group discussions so that the result will be strong regulation rather than light touch regulation.
I will provide a note to the Minister, outlining some of these points. Written Answers follow Adjournment.