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To ask the Chancellor of the Exchequer if he will assess the (a) costs and (b) benefits to the financial services sector of (i) exchange trading of commodity derivatives and (ii) position limits for non-commercial participants in commodity derivatives markets.
The Government have no plans to assess costs and benefits to the financial services sector of exchange trading of commodities. However the Government believe that trading in commodities markets plays an important role in providing liquidity (the volume of trades being made in a market) in these markets and that liquidity is essential to the effective functioning of these markets. Against the backdrop of climate change, and the possibility that international agricultural prices may become more volatile over time, the role of agricultural futures and options markets, and the liquidity they rely on, become more important.
The recent advice given by the Committee of European Securities Regulators (now European Securities and Markets Authority) to the European Commission in October 2010 provides a thorough assessment of the costs and benefits of position limits as part of the regulatory framework for commodity derivatives. This advice can be found here:
(Section IV, Question 12)
Consistent with this advice, the Government believe that the authority to set position limits would appropriately be a part of a position management regime, though not the leading element. Position limits by their nature are inflexible tools, and the Government are sceptical that such measures would be effective in reducing the presence of a particular participant type in the market, or would be an effective tool to address price volatility.