In the communication, the EU Commission explores the market for global commodites and how it functions and proposes a series of measures to improve the regulation, functioning and transparency of financial and physical commodity markets, noting that financial and physical commodity markets are linked in multiple, complex ways and that differences across commodity markets and a lack of transparency on both physical and financial commodity markets further complicates this area.
The EU Commission proposes that action be taken both in relation to raw materials and commodity derivative markets. It considers financial market regulation to be a key means of enhancing the integrity, transparency and stability of commodity derivative markets. The communication identifies the following current EU regulatory initiatives to reform the framework for financial markets:
- The proposed regulation on over-the-counter derivatives, adopted by the Commission in September 2010. The Commission hopes to reach agreement on this proposed regulation by the end of 2011.
- The Markets in Financial Instruments Directive (MiFID) (2004/39/EC) review, due before summer 2011.
- The Market Abuse Directive (2003/6/EC) review, due before summer 2011.
- The Commission's initiative on packaged retail investment products (PRIPs).
- The AIFMD.
- The creation of the European Securities and Markets Authority and the work it will be undertaking to ensure the consistency of technical rules in the commodity derivative markets and strengthening relations with regulators of the underlying physical markets.
The EU Commission notes that a greater understanding of the interaction between physical and financial commodities markets is needed and commits to carry out further analysis of developments on these markets so as to improve understanding of the relationships between these markets and help prevent abusive practices. It will also support similar efforts which have already been launched at global level, such as those put forward by the G20, IOSCO, the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF). The Commission believes that increased transparency in respect of financial as well as physical trading activities will benefit both regulators and market participants.