Interview: Energy speculators seen as prime target for MiFID II rapporteur
There is "no need" for financial speculators in commodity markets, according to Markus Ferber, the special rapporteur for the second Market in Financial Instruments Directive (MiFID II) in a recent interview with ICIS Heren.
As he prepares proposals for MiFID II to present to the European Parliament in July, Ferber's increasingly hardline stance on regulation is cause for concern for market participants.
MiFID II aims to increase the transparency in the way a vast range of financial instruments are traded in Europe, including energy and commodity products. Deriding commodity speculation as a "horrible thing", Ferber promises to do all he can in his role drafting the MiFID II text to "reduce the commodity markets to [the purpose] that they have been created for".
"The commodity market was created because someone was producing a good, and someone wanted to buy a good but those people who want to buy something because they think in the next hours or days or weeks the price will increase, but they never want to have the product for themselves - are they really needed in this market? [The answer is] no".
Among Ferber's bêtes noires is the practise of high frequency trading (HFT), which he believes distorts prices and prevents participants being able to trade on a level playing field.
"If you speak about HFT, you have to take into account that round about 90% of the orders placed by HFT are withdrawn before there is a chance to fulfil them, and that could be a signal that this kind of business is not only linked to selling or buying something, but also to manipulation [of the market]. My aim is to organise a fair and transparent price-bidding process."
A broader scope
To that end, Ferber wants to bring both as many trading institutions and financial instruments as possible under the framework of MiFID II, extending the reach of the current legislation.
At present, physical players such as energy producers are outside MiFID's remit, but in cases where producers also engage in speculative trading activity, Ferber believes that categorisation should be amended. "Now as they are behaving as banks, they should be treated as banks," he said.
"The thing I want to achieve is to bring them inside the MiFID world."
Ferber also wants the scope to regulate the trading of energy derivatives, despite their current exemption under the rules of the European Market Infrastructure Regulation (EMIR).
"We have huge exemptions for commodity [derivatives], and I fully support that. But if a derivative is traded because a company does not use it, or bought more, or made more derivatives than it needs and brings it to a trading venue, it should be under MiFID - that is what I want to achieve."
Doing so would prevent derivative trading from potentially becoming "the next bubble", he cautioned.
Similarly, forcing speculators to trade within position limits would assist a great deal in averting systemic risk in the event of an institutional default or market collapse, he said.
Ferber hopes to enact even more stringent regulation of speculative trading, he added.
"I am thinking of further steps, how to separate between those who have really an interest in the product, and those who only want to benefit from expected developments."
He cited previous European initiatives such as the various bans on short selling during and after the credit crisis, describing short selling as no more than "speculation".
Despite being presented with evidence of the failure of the 2008 ban to bring calm or respite to plummeting European bourses, he maintained that such authoritarian measures were a necessary and useful response on the part of financial regulators.
The 2008 crisis demonstrated financial markets' mutation into a form which they were "never created for", said Ferber.
"If we are able to bring it a little bit back, to the needs of the real economy, then I think we are on the right track."
Ferber's role as special rapporteur sees him preparing background reports and drafting the text of the proposed legislation.
He said that MiFID II is currently "progressing as planned" in both timetable and content, although he raised doubts over the next stage of the process.
"My question is whether the Council will be ready to negotiate, and whether the Cypriot presidency [beginning in July] is able to negotiate with us, and to communicate it with the Council, and to progress with us," he said SF
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