European Parliament draws line in the sand: financial markets must not play with food

Onus of incorporating strong rules to limit speculation on food commodities into Markets in Financial Instruments Directive (MiFID) now lies with Member States

Today, the plenary of the European Parliament has adopted its report on the review of the Markets in Financial Instruments Derivative (MiFID). The draft legislation approved today introduces mandatory limits on harmful speculation which is fuelling price volatility on global agricultural commodity markets. European Member States must now move swiftly to confirm and toughen up the proposed rules.

Marc Olivier Herman, EU Policy Adviser said:

“Members of the European Parliament across the board have sent a clear signal to the Council that mandatory limits on speculation are a ‘must’.

“Cracks in the text adopted today still need to be filled during talks with Member States to make sure it effectively staves off excessive speculation. This is crucial for the millions in poor countries who are hit by high and unpredictable food prices, and for families in the EU who feel the impacts of rising food bills.”

Next steps:

• Negotiations are underway in the European Council on MiFID. European Finance ministers are expected to agree on their position at the earliest at the ECOFIN Council on November 13^th. Negotiations will then begin between the Council and the European Parliament to agree on the final version of the legislation to be adopted by both institutions.

Note to Editors

• On 25/10, during the debate in plenary preceding the vote, members of the European Parliament from all main political groups made clear that their intent in adopting their report on MiFID was to address food speculation. Markus Ferber (EPP) stressed “the need to reduce spot markets so as not to create perverse rules whereby people in the third world cannot buy food” and stressed “the need to erode speculation (…) through strict limits and strict ceilings for positions.” Thomas Mann (EPP) said: “It is important to have commodity position limits, helping to stave off excessive speculation.” Robert GOEBBELS (S&D) said “We need to build proper barriers against commodity and food speculation”. Arlene McCarthy (S&D) used the words “immoral and unjust” to qualify excessive food speculation.  Sharon Bowles (ALDE), in relation to food commodities, said that she supported mandatory position limits because “it’s better to be safe”. Sven Giegold (Greens) underlined the importance of MiFID in relation to the transparency and regulation of commodity trading. Jürgen Klute (GUE/NGL) declared the text was “a good step towards protecting against food price speculation”.
• Position limits cap the number of contracts in a particular commodity that can be held by a trader or group of traders, preventing concentration by the individual or group concerned. This ensures traders do not ‘corner’ markets or exert an excessive influence on prices.
• The text adopted today by the European Parliament imposes limits only on net positions rather than on the amount of contracts or the open interest. Moreover the text does not require that limits apply to the entire lifetime of a derivative contract. Oxfam calls on the European Parliament and Council to close these loopholes which risk making the limits on speculation ineffective in the final step of the adoption of MiFID.
• There is extensive debate about the harmful effects of excessive speculation. While there is no unanimous consensus on the effects, a long list of studies and analyst reports have found various indications for price distorting and inflating impacts of commodity speculation.