European Commission Adopts Rules to Bolster Commodities Market Regulation

The European Commission announced today that it has taken important steps to strengthen the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term of commodities markets and curb price speculation. The move also ensures that firms which are active on these markets are appropriately regulated.

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According to the EC’s statement, the package completes the rulebook of secondary measures under the revised Markets in Financial Instruments Directive, known as MIFID II, and gives market participants time to prepare for its application, from 3 January 2018.

Background

The Commission has adopted regulatory standards that will define the parameters for authorities to determine "position limits", i.e. the maximum amount of commodity derivatives that can be held by a single trader, and which represent a tool that will help limit commodity speculation, support orderly pricing and prevent market abuse.

Essentially, the rules establish a baseline and maximum bands of deviation on either side of the baseline, to be set by the regulators in line with observed price Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term in the underlying commodity markets.

The standard also contains several chapters to cater to the so-called 'illiquid' derivative contracts, i.e. where open interest levels (number of pending contracts at any given moment in time) are low or where there a few market participants.

Moreover, the new standards contain an explicit reference to how volatility should be considered by NCAs. In particular, authorities should seek to minimise volatility or at least review their limits more often in cases of excessive volatility.

Finally, the rules also ensure that large non-financial firms trading a large amount of commodity derivatives are regulated under MiFID II.

Valdis Dombrovskis, Vice-President for Financial Stability, Financial Services and Capital Markets Union, commented: “Today's rules will contribute to better functioning commodities markets that work for the real economy while helping to deal with some of the problems we saw in the financial crisis. We have listened to the concerns raised by the European Parliament and provided for stricter position limit standards whilst at the same time seeking to avoid unintended consequences."