BRUSSELS – European Union negotiators have struck a deal on the outlines of a new regulation covering a wide array of financial instruments and markets, including provisions to curb food speculation and tighter controls on the power of computers to make trading decisions.
The regulation agreed to late Tuesday after more than three years of negotiations includes limits to cap trading of some commodity derivatives that has been blamed for driving up food prices.
The EU Commission, the bloc’s executive arm, said the rules on agricultural derivatives will “contribute to orderly pricing and prevent market abuse, thus curbing speculation on commodities and the disastrous impacts it can have on the world’s poorest populations.”
The rules also seek to ban unregulated trading and establish tighter rules for high-frequency trading, which some blame for increasing volatility to a point that threatens the stability of financial markets. High-frequency trading, which involves computers making split-second decisions based on mathematical models, has become an increasingly important driver in financial markets in the past few years.
“The new rules will for the first time slow down the pace of trading, increase transparency and ensure prices reflect current market conditions and ensure proper supervision,” said centre-left European Parliament lawmaker Arlene McCarthy.
Representatives of the EU’s 28 governments and EU lawmakers struck the deal on the outlines of the so-called Markets in Financial Instruments Directive, or MiFiD, in a late-night session in Strasbourg.
The legislation is part of the overhaul of financial regulation after the financial crisis, following up on commitments made at the level of the G-20 leading economies. Many similar measures have already been put in place by American lawmakers and regulators, most notably with the sweeping Dodd-Frank Act in 2010.
Michel Barnier, the EU commissioner responsible for financial regulation, said the new rules “are a key step toward establishing a safer, more open and more responsible financial system and restoring investor confidence.”
The Commission said the rules will also introduce new structures to “close loopholes and ensure that trading, wherever appropriate, takes place on regulated platforms.” The hope is that the new rules will curb the so-called shadow trading that is currently taking place beyond the oversight or regulators.
The fine print of the legislation still has to be finalized. A plenary vote in the European Parliament is expected to be held by April, but experts estimate it could take two years before the rules take effect.
The 28-nation EU is the world’s largest economy and home to London and Frankfurt, two of the world’s most important financial hubs.
Organizations seeking to fight global hunger welcomed the agreement.
Marc Olivier Herman of Oxfam, an international aid agency, said the “decision marks a good start in tackling ‘gambling’ on food prices which are a matter of life and death to millions in the developing world.”
He added that the limits have come in spite of “attempts by the (British) and other governments to block any meaningful reform.”
Herman cautioned, however, that the implementation will be crucial since some trading limits will still be set by national authorities rather than at the common European level.
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