Christine Lagarde Wants to Regulate Raw Materials Markets

In a platform published on Monday June 21st in the Les Echos daily newspaper, the French Minister for the Economy reminded us of the urgency and fundamental need for Europe to implement specific measures regulating raw materials derivatives markets in order to prevent excessive and dangerous volatility.

“While derivatives were originally designed as risk hedging instruments, they have become one of the causes of raw materials’ price volatility,” she said, “constituting a hindrance to financial stability and recovery.”

This is why she is proposing to re-draw the lines and establish European supervisory measures in order to better regulate markets. Here, the Minister for the Economy is following the American rationale of the Obama Administration which has already begun major financial market reform. Last April, the American Senate’s Agriculture Commission voted to add a new amendment establishing supervision for derivatives markets, many of which have agricultural raw materials as underlying assets. This amendment’s most notable provision? Prohibiting major investment banks from participating in these markets.

Christine Lagarde’s appeal confirms that it is now urgent to regulate financialised markets, in particular raw materials markets, and adopt joint, or at least mutually compatible, rules for their governance. Such are the stakes of the G20 meeting to be held in France in 2011.