On June 13 2013, the Irish Presidency reached a breakthrough in talks at Council level on the MiFID II and MiFIR proposals which aim to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors. The achievement of a Council General Approach, which was endorsed at Ecofin on 21 June 2013, signals a significant step forward by the EU towards protecting against excessive financial speculation in the food and other commodity derivative markets.
The regulation of derivative trading in the EU has been part of Council discussions within the EU since September 2010 when the Commission published its proposal for the European Market Infrastructure Regulation (EMIR) to regulate this market in the context of over-the-counter (OTC) trades. This EU Regulation, which is directly applicable in all Member States, entered into force on 16 August 2012.
In particular, the Council text of MiFID II contains important provisions relating to position management, position limits and product intervention. These provisions are in respect of all financial instruments, including commodity derivatives, and have the purpose of providing regulators with tools to avoid excessive speculation in financial instruments, including commodity derivatives. Competent authorities will be obligated to establish and apply position limits on the size of a position in a commodity derivative which a person can have over a specified period of time.
Furthermore, competent authorities will have product intervention powers whereby they may prohibit or restrict trading of financial instruments or prohibit or restrict investment activities when there is a threat to the orderly functioning and integrity of financial markets or commodity markets. The European Securities and Markets Authority (ESMA) will have contingency and coordination powers in position management and product intervention to ensure consistent application across all Member States. In the exercise of its powers, ESMA will also have to consult public bodies competent for the oversight, administration and regulation of physical agricultural markets.
EMIR and MiFID II combined are expected to result in a tighter regime for all derivatives, including food securities, whether traded OTC or through exchanges. The measures are intended to keep pace with trends in derivatives trading, in line with G20 commitments made at the 2009 Pittsburgh summit. Council General Approach will be progressed further by the Lithuanian Presidency when they begin negotiations with the European Parliament at Trilogues. We will continue to monitor developments on this file throughout the legislative process.