A good week for our food speculation campaign

Earlier this week, the European Parliament’s economic affairs committee voted overwhelmingly – 36 against 1 – in favour of a draft law to regulate shadowy derivatives trading. Derivatives are complex financial contracts that can be bought and sold and are the way that banks can speculate on food prices. One of the demands of our food speculation campaign is that food derivatives are traded on ‘open exchanges’ where they can be regulated properly and all trading is transparent, in the same way shares are traded on the stock market. 

Just before the vote, our European partners over at Make Finance Work produced an e-action asking MEPs on the economic affair committee to vote in favour of the proposals. In just a couple of days over 2,000 people, including hundreds of WDM supporters, wrote to their MEPs and we believe it had an impact on the outcome of the vote. Thank you for taking part.

The proposals would introduce central clearing – bringing trading out from current secret bilateral deals and allowing regulators to see who is trading what. However, although these proposals are definitely a step in the right direction, they don’t go as far as establishing a properly transparent central open exchange. But, it has clearly shown that the European Parliament has appetite for limiting speculation, boding well for the rest of the campaign. 

This autumn, probably in October, (unless the process gets delayed), the really important piece of legislation – Markets in Financial Instruments Directive – will be published (don’t worry about remembering the name of it, we rarely do either, and just call it ‘MiFID’). Our campaign aims to ensure that MiFID contains both of our main demands:

1. All futures contracts and food derivatives to be cleared through regulated exchanges, bringing them out in the open.

2. Strict limits to be set on the amount of contracts that can be held by banks and other financial speculators, to prevent them overwhelming the market (position limits).

As our campaigning and lobbying is paying off (including over 3,000 submissions to the European Commission’s MiFID consultation in January) and MEPs seem to be keen to tackle these issues we believe that the first draft of MiFID will be relatively strong. What makes us particularly hopeful is what the European commissioner for internal markets, Michael Barnier said this week: 

A bit like the Americans, we are going to make sure you are not having a dominant operator on the market. We will go along the same lines as the Americans in October. We are going to make proposals for limits."

The American Dodd-Frank Act that Barnier is referring to is tough on food speculation. However, US campaigners are currently fighting hard to get it implemented, with Republicans trying to delay its introduction until 2013 and watering down the important ‘position limits’ provision. 

It is likely that we would experience similar resistance from the UK government, even if MiFID is passed by MEPs in the European Parliament this autumn. This is why we are already putting pressure on the Treasury to support regulation of food speculation.

If you haven’t written to the Treasury yet, we would really appreciate if you did. You can do it here.

Thank you for your continued support of the campaign. We wouldn’t be able to do it without you.