Denis Naughten
Question:20. Deputy 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. [1607/14]
View answerThursday, 16 January 2014
Questions (20)
Written answers
Proposals to regulate food securities at an EU level form part of the current MiFID II and MiFIR proposals which aim to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors.
The Irish Presidency achieved a Council General Approach on this file which has enabled negotiations, via Trilogues, with the European Parliament and the European Commission.
Under the current MiFID II proposals, the level of exemptions available has been reduced and more products will be defined as derivative financial instruments when compared with MiFID I, and will therefore fall within the scope of MiFID II and other financial legislation such as Market Abuse. MiFID II also 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. The Council is proposing that competent authorities, with the guiding hand of ESMA, 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, subject to the final agreement between the co-legislators, 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.
MiFID II contains important provisions which set out new rules for commodity derivative markets. However, the regulation of commodity derivative markets, including where they take place Over the Counter (OTC) and as they are related to the physical commodity markets, must be assessed based on how they are dealt with across the totality of financial services files.
The MiFID II proposals complement the European Market Infrastructure Regulation (EMIR), which seeks to make the derivative markets, including commodity derivative markets, safer and more transparent. This is achieved by obligating entities to report all derivative transactions, to put in place risk mitigation techniques and to centrally clear contracts with counterparties, where the entity holds a large position. In addition, regulators will now have full information on this market which has not previously been available. The provisions contained in the European Market Infrastructure Regulation (EMIR) will be activated upon the entry into force of the relevant technical standards.
The Market Abuse Regulation, agreed under the Irish Presidency, also extends its scope within commodity derivative markets and to spot commodity markets. It clarifies that the manipulation of benchmarks, including commodity derivative benchmarks, will be an offence.
This will be complemented by two other EU legislative instruments, a criminal sanctions Directive on Market Abuse and a Regulation on Benchmarks. The Regulation on Benchmarks is set to be particularly prescriptive towards commodity benchmarks.
All of these EU financial services files combined are expected to result in a tighter regime for all commodity derivative markets, including food securities, whether traded OTC or through exchanges. This new legislative environment will be much more prescriptive than the current situation and will serve to prevent market abuse and to support orderly pricing in commodity derivatives and related commodity markets.
We support the stronger rules as applied to commodity derivative markets to guard against market abuse and support price stability. This will curb excessive speculation and serve to reduce price volatility in the underlying commodity markets. Negotiations continue under the Greek Presidency and we will continue to monitor developments on the MiFID II file throughout the legislative process.