Andrew Doyle (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

57. To ask the Minister for Finance if he will outline measures taken at the May ECOFIN meeting to secure protections against excessive financial speculation in the food and other commodity derivative markets through the review of the Markets in Financial Instruments Directive; and if he will make a statement on the matter. [23718/13]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The MiFID, markets in financial instruments directive, file was included on the ECOFIN agenda as part of the any other business legislative updates on key files and there was very little discussion on the issues in the file. The purpose of the discussion was to update the member states on the current state of play of this dossier and to reiterate my hope that the Council can reach an agreement on a general approach during the Irish EU Presidency.

Trading in commodity derivatives, including food commodity derivatives, forms part of the regulation of derivative trading in the EU. Regulation of derivatives has been part of Council discussions within the EU since September 2010 when the Commission published its proposal for the European market infrastructure regulation, EMIR, to regulate this market in the context of over-the-counter, OTC, trades. This EU regulation, which is directly applicable in all member states, entered into force on 16 August 2012.

In October 2011, the European Commission published a revised MiFID proposal, MiFID II, which includes within its scope commodity derivatives traded on exchanges. As previously stated, the negotiations on the MiFID review are still under way in the Council of the EU.

EMIR and MiFID II combined are expected to result in a tighter regime for all derivatives, including food securities, whether traded OTC or through exchanges. The measures are intended to keep pace with trends in derivatives trading, in line with G20 commitments made at the 2009 Pittsburgh summit.

The Central Bank of Ireland is the competent authority in this country for the purposes of derivatives legislation. In particular, the current Council text of MiFID II contains important provisions relating to position management, position limits and product intervention. These provisions are in respect of all financial instruments, including commodity derivatives, and have the purpose of providing regulators with tools to avoid excessive speculation in financial instruments, including commodity derivatives. Competent authorities will be obligated to establish and apply position limits on the size of a position in a commodity derivative which a person can have over a specified period.

Furthermore, competent authorities will have product intervention powers whereby they may prohibit or restrict trading of financial instruments or prohibit or restrict investment activities when there is a threat to the orderly functioning and integrity of financial markets or commodity markets. The European Securities and Markets Authority, ESMA, will have contingency and co-ordination powers in position management and product intervention to ensure consistent application across all member states. In the exercise of its powers, ESMA will also have to consult public bodies competent for the oversight, administration and regulation of physical agricultural markets.

When an agreement is reached on Council general approach, the negotiations will move to trilogues between the Council, European Parliament and Commission.

Noel Harrington (Cork South West, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Deputy Andrew Doyle is not in the Chamber as he is chairing a committee meeting. I thank the Minister for his response.

The review of the markets and financial instruments directive is a very complex area. Speculation on food and other commodity derivative markets has significant repercussions not just for producers in Ireland and the European Union but also global consumers. The effect of excessive speculation is contributing to huge price inflation for food, particularly in developing countries. It is not just affecting people’s pockets but is almost a matter of life and death in developing countries. I accept other issues, such as the consolidation of banking in the European Union, will take up much of the agenda at the forthcoming ECOFIN meeting.

However, regulation and supervision under MiFID should be European wide and it should not be left to member states to supervise or regulate their own markets. Over the counter trading must be included in the regulation and not exempted or watered down, and there should be genuine reporting of trading on these markets. We are aware of the algorithms and the processes by which traders and markets operate and the speed with which they operate. There should be a matched response in reporting to the Central Bank to assess these issues. It is a hugely important issue and I urge that the position be taken against the lobbying by the financial industry, particularly in the UK.

Denis Naughten (Roscommon-South Leitrim, Independent)
Link to this: Individually | In context | Oireachtas source

Deputy Harrington has raised the kernel of the issue. Price volatility on the world markets has an impact on food inflation. Farmers who have to purchase protein supplements to feed animals can outline the impact of price speculation on their day-to-day livelihoods. This issue is not only about speculators on the commodities markets gambling with the lives of people in the developing world; it is also threatening the livelihoods of livestock farmers in Ireland. An additional 159 million have become hungry because of food spikes in both 2008 and 2011 and food speculation on the derivatives markets was a factor in this regard. Will the Minister clarify that the Government's position is to force position limits across the sector on an individual rather than a market management situation, which it is feared could be the approach taken? Can he ensure the loopholes are not allowed to water down this directive to make sure speculators can get around market speculation through the use of individual limits rather than limits across the sector as a whole?

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

There is significant concern about this issue and it was ventilated earlier when we discussed food poverty and the impact that has on developing countries. I would like to focus on the concerns of many groups about the watering down of this directive during the review. There has been a deal of transparency. For example, Sharon Bowles and a number of other senior MEPs have put on record the number of lobbies they have received. Will the Minister put on the record whether he has received any lobbies from the industry, who they were, the number of meeting requests and so on, and take a leaf from Sharon Bowles and others? Barclays won the award of shame last year for its speculation on food commodities. Will he confirm that none of the financial institutions the State owns or in which it has shares is involved in such speculation?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I have had no representation from people in the industry on expanding or watering down MiFID but there may have been representations to my Department. If Deputy Doherty tables a parliamentary question for written answer, I will make sure it is answered adequately.

The best way to reply to all three Deputies is to give a short summary of the current Council text. It states:

First, more products will be defined as derivative financial instruments as compared to MiFID I and will, therefore, fall within the scope of MiFID II and other financial legislation such as market abuse.


Second, MiFID II narrows down exemptions as compared to MiFID I. This means that many commodity firms will fall within the scope of the legislation and will have to comply with all MiFID II provisions.


Third, MiFID II also contains position management position limits and product intervention provisions in respect of all financial instruments, including commodity derivatives, as tools to avoid excessive speculation in commodities.

The current Council text of MiFID II proposals places position limits at the centre of position management and requires limits to be imposed as part of the position management regime for commodity derivatives. Competent authorities will be obligated to establish and apply position limits on the size of a position on a commodity derivative which a person can have over a specified period of time. Investment firms and market operators operating a trading venue which trades commodity derivatives will also have to apply position management controls. Furthermore, competent authorities will have product intervention powers whereby they may prohibit or restrict trading on financial instruments or prohibit or restrict investment activities when there is a threat to the orderly functioning and integrity of financial markets or commodity markets.

The European Securities and Markets Authority will have contingency and co-ordinated powers in position management and product intervention to ensure consistent application across all member states. In the exercise of its powers, ESMA will also have to consult public bodies competent for the oversight, administration and regulation of physical agricultural markets. Moreover, entities and persons otherwise exempt from MiFID II will still have to comply with position limits and position management provisions.

It meets many of the Deputy's requirements. In terms of the Irish Presidency, we are committed to advancing it as a priority and we think we will have it substantially advanced in the last weeks of our Presidency, but it may not be fully in place. However, I think we will have taken it beyond the point of no return.

Denis Naughten (Roscommon-South Leitrim, Independent)
Link to this: Individually | In context | Oireachtas source

Will the Minister try to ensure the position limits are set at a European level rather than at a national level? He might take that on board in the discussions.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will do that.