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A major step forward in the battle against speculation with food

European Parliament approves new Financial Instruments Directive MiFID

On 15 April 2014, the European Parliament approved the new European Financial Instruments Directive MiFID (Market in Financial Instruments Directive).

Federal Minister of Agriculture Christian Schmidt welcomes this decision. "The European Parliament's approval of the new Financial Instruments Directive marks another major step forward in the battle against excessive speculation with food. The new Financial Instruments Directive will emphasise the positive characteristics of agricultural futures markets for consumers and producers and limit harmful activities. This will enable the farming sector to continue hedging against unexpected price fluctuations in the future whilst putting a stop to wild speculation with hunger," Schmidt said.

The revised directive governs inter alia the trade in agricultural commodities on EU futures markets. The new MiFID creates among other things new legal prerequisites to introduce mandatory position limits within the EU. They represent maximum limits for financial investors on commodity futures markets and are designed to reduce excessive speculation with commodities. Physical hedging operations for farm sector operators are excluded from the position limits.

The introduction of regular and prompt reporting similar to the system in place in the USA will significantly improve transparency on futures markets. Thus, the new directive will illustrate among other things the extent to which speculative investors are active on the futures markets. This facilitates the use of regulatory instruments by supervisory authorities and improves the basis for solving scientific questions regarding the interaction of futures markets and spot markets.

Moreover, MiFID provides for the possibility to interrupt trading to limit the risks of high frequency trade. It is now also possible to ban financial products which represent a danger to financial and commodity markets.

Background information

The agreement on the new Financial Instruments Directive MiFID implements the decisions made by the G20 heads of state and government to strengthen transparency and to have an appropriate regulation of agricultural futures markets. In January 2014, after long negotiations, the Council, European Parliament and Commission agreed on the revised Financial Instruments Directive MiFID (Market in Financial Instruments Directive).

Following the formal approval by the Parliament, the new directive is expected to come into force by July 2014. It will then take up to two years for the Commission and the EU financial supervisory authority ESMA to draw up the necessary implementation rules. Federal Minister Schmidt announced that his ministry would be actively involved in shaping the elements that relate to agricultural commodities.

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