Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment he has made of the potential impact of lifting constraints on commodity market speculation introduced following the 2008 (a) finance and (b) food price crisis.

The Government believes effective commodities markets regulation is a key part of ensuring economic stability. This is a lesson reinforced by both the food and financial crises in the 2000s. In response to G20 commitments, the EU put in place a regime that sets limits on the amounts of commodity derivatives that market participants can hold, to ensure speculation does not lead to economic harm.

The Government supports the application of position limits to the most volatile commodities (including key energy and agricultural products). However, the regime that we have inherited from the EU is overly complicated, needlessly burdensome and poorly designed. In particular, it unnecessarily captures all exchange traded and economically equivalent over-the-counter commodity derivative contracts including those that have low levels of low volatility and risk. This undermines efficient pricing in many such contracts and creates burdens for firms.

To address this, the Financial Services and Markets Bill will ensure exchanges can once again set position limits, within an FCA framework. Exchanges are well placed to ensure that such position limits only apply to contracts that are subject to high volatility. Agricultural products and other key physically settled contracts such as oil and gas will remain subject to position limits. The FCA will also powers to intervene to set position limits if need be.

These changes were consulted on and received broad support[1] and is in line with the Government’s G20 commitments.

[1] Wholesale Markets Review Consultation: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998165/WMR_condoc_FINAL_OFFICIAL_SENSITIVE_.pdf

Wholesale Markets Review Response: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1057897/Wholesale_Markets_Review_Consultation_Response.pdf