G20-leader France will make concrete proposals to regulate commodity derivative markets, despite its recent focus on ways to make physical trade more transparent, farm ministry sources said on Thursday.
France will propose including position limits, identifying commodity players as either speculative or commercial, while also seeking a framework to record over-the-counter, or non-exchange, trades, the sources said.
It holds the 2011 presidency of the G20 group of major economies.
France had said it wanted to regulate increasingly volatile commodity derivative markets but had given few details on its concrete proposals. Instead it focused on making physical markets more coordinated -- a target seen more attainable than a derivative market revamp.
Speaking in Davos, Switzerland, on Thursday, President Nicolas Sarkozy reiterated the need for more transparency of global agricultural supplies in order to curb wild swings in food prices.
Position limits are already part of the European Commission's proposals to clamp down on speculators in commodities under the Markets in Financial Instruments Directive (MiFID) but the source said the G20 would be a better option.
"The general outline is that when you are in a (derivative) market you can see who are the actors. Our second proposal is to try and limit the positions and to try to have a system to regulate -- but it will be extremely complicated -- OTC operations," one farm minister source said.
A regulation of EU markets in the same spirit as U.S. markets would shift trade to less regulated centers, it said, stressing that the G20 was the only body that could solve these questions.
Derivative market operators would need to declare themselves as speculative or commercial players depending on the basis of their main activities, the source said.
The farm ministry did not give details on position limits, stressing that financial issues would have to be negotiated by G20 financial ministers, rather than agricultural ministers.
For most of its proposals on derivative markets France would draw its inspiration from the U.S. Dodd-Frank financial reform law adopted last year, the source said.
PRAGMATISM
France's most concrete G20 plans for a better commodity markets regulation focused on physical markets.
The source detailed Sarkozy's proposal to create an agriculture database similar to the Joint Oil Data Initiative (JODI), administered by a producer/consumer body based in Saudi Arabia, which gathers oil data.
It could be called JADI for "Joint Agriculture Data Initiative" and gather information from sources including the U.S. Department of Agriculture (USDA), the United Nation's Food and Agriculture Organization (FAO), the European Union, the International Grains Council (IGC), and countries.
"The idea is that the signals given by the big producers are harmonized," the source said.
Large countries such as India and China had not given their answer on a proposal of an harmonized database yet, it added.
"Our wish is to obtain, within the G20, a consensus on the fact that there is volatility -- notably excessive volatility -- and we agree to put in place in a pragmatic way, some measures of transparency on physical markets, of transparency on financial markets, on which we think we can move forward," the source said.
Source: http://www.reuters.com
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