A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
A look at the news

Speculation on agricultural products:
ESMA refocused by Brussels

March 28, 2016


The revision of the directive on markets in financial instruments (MiFID 2) that was passed in April 2014 is intended to lower systemic risks and to protect the integrity of financial market operations by containing excessive speculation especially on food products, while making trading more transparent and safer for operators.

The MiFID 2’s objective is therefore to set limits to prevent unduly high positions held by a sole trader. To implement such directive, the European Securities and Markets Authority (ESMA) was established to formulate regulatory technical standards (RTS) following consultation of the concerned parties. On that basis, the MiFID 2’s delegated and implemented acts will be prepared by the European Commission, and then subject to consultation with the European Parliament and with the European Council during the first half of 2016. Yet these technical standards are specifically blamed for their s by Markus Ferber1 (PPE), the European Parliament Rapporteur on MiFID 2, and more recently by the European Commission2.

Jonathan Hill, European Commissioner for Financial Services, has asked the European Securities and Markets Authority (ESMA) to review its text regarding three key provisions: Transparency on markets other than securities markets, the scope of exemption for ancillary activities and position limits.

According to the final text of the ESMA’s RTS that was published in late September 20153, position limits are set at 25 percent of open positions in a futures market, but with a variable threshold that can be increased or reduced (from -20% to +10%)4 by each national regulator. As a result, by using the authorized highest authorized leeway, a trader could control 35 percent of open positions in a futures market, which is substantial. The proposed position limits seem all the higher, since ESMA is also planning a specific system for the less liquid contracts, i.e. markets with a low business activity and/or in early development stage (open position lower than 10,000 lots) with a limit set at 2,500 lots.

For Brussels, such provisions are broadly inadequate to fight excessive speculation on agricultural commodities, especially on grain. In a letter addressed to ESMA on March 14, 2016, the Commission felt that the European regulator should have proposed lower position limits because of the extreme volatility concerning some agricultural commodities5. ESMA now has six weeks to develop new proposals. In the mean time, the entry into force of MiFID 2 has been pushed back a year to January 2018.

ESMA could instead refer to the practices implemented in the United States. The overhaul of the financial regulation system passed with the July 2010 Dodd-Frank Act has intended to tighten and extend to 28 products the structure of position limits in use since the 1930s. For all contracts reaching maturity date, the limit was set at 25 percent of the volume ready for delivery, but for all contracts concerning a single product, the limit was set at 10 percent of the interest open on the first 25,000 contracts, and 2.5 percent afterwards. In addition to position limits, the control of traded volumes is more crucial to prevent malfunctions and ensure that futures markets are first and foremost helpful to stakeholders in the real economy 6.


1 « Food speculation must be contained », EPP Group in the European parliament, 29 september 2015
http://www.eppgroup.eu/press-release/Food-speculation-must-be-contained

2 Markus Ferber’s press release expressing his satisfaction that the Commission is revising its assessment
http://www.markus-ferber.de/verschiedenes/presse-aktuell-single-view/article/news-mifid-ii-engl.html

3 “Regulatory technical and implementing standards – Annex I”, ESMA, 28 september 2015
https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-(...).pdf

4 SECTION II, Factors relevant for the calculation of position limits, Article 14 (Article 57(3) of Directive 2014/65/EU), Assessment of factors, ESMA
https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-(...).pdf

5 https://www.esma.europa.eu/press-news/esma-news/esma-(...)-rts
6 To highlight this, you can read the momagri’s article available at:
http://www.momagri.org/UK/a-look-at-the-news/The-CME-Group-tackles-volatility-(...).html



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Paris, 13 December 2018