Regulators tasked with drafting the final language are due to confer this week. However, it also calls into question US regulators’ ability to effectively regulate the global operations of Wall Street banks in the wake of the financial crisis.
Earlier this year, British, Canadian and European Union regulators voiced criticism over the possibility that the Volcker Rule ban on proprietary trading would restrict foreign debt markets while exempting US Government debt. Likewise, Singapore banks have submitted their objections, saying that it would impinge on their business outside of the US and undermine the role of the Monetary Authority of Singapore (MAS). US and foreign regulators are yet to reach consensus on the international reach of the 2010 Dodd-Frank Act.
In April US senators filed a friend-of-the-court brief to help the US commodities regulator, the Commodity Futures Trading Commission (CFTC) defend the rules it passed in October 2011 on position limits in oil markets aimed at preventing excessive speculation. The Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) filed proceedings in December 2011, arguing that the rules could costs their members tens of millions of dollars, and that the CFTC failed to thoroughly review the economic impact of the rules on markets. In the meantime, President Obama has urged Congress to increase federal supervision of oil markets, including higher penalties for market manipulation and greater power for regulators to raise margin requirements for traders’ oil positions.
Asian markets continue to monitor and learn from regulatory developments in the US and Europe. In February, the MAS unveiled its plans for meeting G20 commitments for over-the-counter (OTC) derivatives reform. The two consultation papers: "Consultation Paper on Transfer of Regulatory Oversight of Commodity Derivatives from IE to MAS" and "Consultation Paper on Proposed Regulation of OTC Derivatives" explain how the MAS believe that Asian’s second largest OTC market should comply with requirements that derivatives be moved into more transparent trading systems and clearing houses. In contrast to Dodd-Frank, the MAS said it was "currently working with the industry to better understand the costs and benefits of a trading mandate, taking into consideration the characteristics of the Singapore market".
As mentioned in a previous Commodities Brief, in October last year the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) jointly published a consultation paper on the proposed regulatory regime for the OTC derivatives market in Hong Kong. A further consultation on the detailed rules of the new OTC derivatives regime is expected this year.
In other news
In January, the China Iron and Steel Association (CISA) and the China Beijing International Mining Exchange (CBMX) launched its online trading platform aimed to rival Global Ore’s trading platform. China’s steel industry imported a record 686 million tonnes of iron ore last year. Although volumes traded are still quite modest, China’s promotion of the platform represents a concerted effort to determine pricing. In March, Australia passed the Minerals Resource Rent Tax, which will become law on 1 July 2012. The 30 per cent levy on iron ore and coal mining profits is expected to generate AU$11 billion in taxes within three years from iron ore and coal miners including BHP Billiton and Rio Tinto. Last month Singapore Mercantile Exchange (SMX) reported close to one million contracts valued at almost US$30 billion traded in the first quarter of 2012. SMX has seen particular growth in its launch of new contracts in base metals, agriculture commodities and indices categories, including Copper, Black Pepper and Iron Ore Index. Earlier this month, China’s largest offshore oil producer, CNOOC, deployed China’s first deep-water drilling rig 199 miles southeast of Hong Kong. The area is north of the disputed Paracel islands. Competition for natural resources in the sea has most recently increased tensions between China, Vietnam and the Philippines. South China Sea resources are estimated to have as much as 30 billion tonnes of oil and 16 trillion cubic metres of gas.
Repsol, the Spanish oil and gas company, joins a list of energy and utilities companies with substantial unsatisfied claims against Argentina. After the expropriation of a 51 per cent stake of its YPF unit, the company is seeking compensation of US$10.5 billion. There are reportedly 26 cases pending against Argentina at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). Earlier this year, Venezuela, which comes in at number two for most cases before the ICSID, began the process of withdrawing from the ICSID in the wake of mounting compensation claims following nationalisations under President Chavez.