By Jim Brunsden - Oct 14, 2011 12:53 PM ET
Nicolas Sarkozy
Michele Tantussi/Bloomberg
Nicolas Sarkozy, France's president, speaks during a news conference at the Federal Chancellery in Berlin on Oct. 9, 2011.
Oct. 14 (Bloomberg) -- Daniel Price, a managing director at Rock Creek Global Advisors LLC, talks about the euro-zone sovereign debt crisis and the role of the International Monetary Fund. He speaks from St. Louis with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)
The European Commission, the 27-nation EU’s executive arm, is seeking limits on the number of commodity derivative contracts “any given market members or participants can enter into over a specified period of time, or alternative arrangements” with the same impact, according to copies of proposals set for release on Oct. 20 that were obtained by Bloomberg News.
French President Nicolas Sarkozy has demanded steps to curb commodity derivatives speculation, which he blames for driving up world food prices. He has made the issue a priority of France’s presidency this year of the Group of 20 nations.
While it is “arguably necessary” to take drastic, preventative measures in certain extreme market conditions, this “must be balanced against the adverse consequences that will be caused,” Etay Katz, a regulatory partner at law firm Allen & Overy LLP in London, said in an e-mail.
“Such interference can be highly disruptive, costly and a crude measure to crack down on potential actions of a small minority of market participants,” Katz said.
High-frequency trading firms would be forced to better manage their risk and will be banned from some practices under next-week’s proposals, that will also include draft laws toughening market-abuse sanctions.
High-frequency traders came under increased regulatory scrutiny following the so-called flash crash in May of last year, during which the Dow Jones Industrial Average briefly lost almost 1,000 points.
Flash Crash
The flash crash “alerted regulators to the potential for some trading behavior to seriously disrupt markets,” Richard Reid, the International Centre for Financial Regulation’s director of research, said in an e-mail.Mary Schapiro, the chairwoman of the U.S. Securities and Exchange Commission, and regulators from the U.S., Europe and Asia discussed high-frequency trading practices at a London meeting today.
Under the plans for commodity derivatives, the EU would have the power to set the same position limits across the entire region if it felt that curbs put in place by national regulators were not working. The rules would help tackle “excessive” price volatility for commodities, according to the EU documents.
