ISDA - Commodity Derivatives event

Los Angeles

Ladies and gentlemen,

I hope that the event this afternoon has been informative, and I’m sorry not to have been able to be here earlier to hear what was no doubt an excellent panel discussion.

To start, I have to say, that the Commodities aspects of MiFID II were my least favourite part of the file.

For me there were much more important issues to discuss.

Issues like ensuring the equity markets were fair and effective for channelling investors savings into financing the economy.

Provisions that ensured retail investors were being treated fairly when they received investment advice.

Fulfilling the G20 commitments following the financial crisis on trading of derivative products.

In fact, the most important issue for me, was ensuring that extending the MiFID I transparency provisions from equities to the fixed income markets was done in a way that did not destroy our entire debt markets.

But if you were to ask many of the other MEPs who were involved in that long and protracted negotiation that produced MiFID II what area was their priority.

They would say commodity derivatives and position limits.

In fact they would probably say “ending food speculation”.

Many would claim to have the ambition of completely “de-financialising” the commodity markets.

Wanting to remove any financial intermediary from the commodity markets who did not have an economic interest in the underlying product.

I have given many many speeches on different aspects of MiFID over the years.

And many of you will have heard my mantra about facts, data and evidence time and time again.

It felt like a broken record for a while.

Yet this was the one area of the legislation that data didn’t improve the legislative outcome.

There is no stat you can produce to counteract unsubstantiated claims by NGOs that African farmers are being exploited by the evil speculators.

The only issue I received more postcards, emails and petitions on than commodity derivatives in my entire term in elected office has been the free trade agreement between the US and the EU.

The trade deal that is probably never going to happen now.

That was the level of protest from the general public.

Concepts like “open interest”, “deliverable supply”, what it is to be “physically settled” aren’t often raised in my post bag by my constituents in Wales.

Yet I received detailed letters stating that the level 2 provisions on MiFID did not adequately address these issues and we should go back to the drawing board to further restrict participants in commodities, especially agricultural commodities.

Hearing this probably doesn’t help you with implementing some of the issues that are now facing you 6 months before the MiFID II go live date.

But perhaps it can explain why some of the provisions are more political than practical.

At today’s event you were fortunate to hear from the experts at the FCA, Paul Willis and Carole from the AMF, as well of course, as Ugo Bassi from the European Commission.

They are the expert regulators who are making the MiFID II provisions work in the real world.

Whereas in other areas of MiFID I would be happy to tell you what the Parliament’s intent was in including pretty detailed provisions in the text, it is technicians like the FCA and the AMF who are in the best position to tell you whether you are complying with the spirit and the letter of MiFID II when it comes to the provisions around commodity derivatives.

The very different characteristics of each and every asset class running into the hundreds if not thousands, could never be reflected in one overarching piece of legislation.

Therefore the work of the national supervisors will be critical in achieving a workable outcome that maintains fair and effective markets.

The one thing that I can say myself and my colleagues in the Parliament are doing that should be considered helpful at the moment.

Is providing support to ESMA and the national competent authorities when they are finding practical difficulties with implementing some of the provisions in the level 1 text.

Markus Ferber and myself are united in the belief that we now need to stop navel gazing and get down to the practicalities of making this legislation work in time for January 2018.

That means supporting the supervisors when they ask for more legal certainty on a provision and making clear that their interpretation of rules is an acceptable one.

As with every topic at the moment, I’m sure that many of you want to know what Brexit means for MiFID II?

 The very simple answer, is nothing immediately.

In January 2018 the UK will be a fully paid up member of the EU.

We will be bound by all of the provisions of MiFID and MiFIR.

Full implementation will have to take place.

In the immediate term that will not change.

Beyond that, the great repeal bill will transpose EU regulations onto the UK statute books.

In the longer term I would like to stand here and say that a future UK government would take a red pen to the commodities sections of MiFID II.

Be able to adjust the legislation based on fact, data and evidence as it become available via the position reporting regimes and transaction reporting regimes.

But I can assure you, that those same people who wrote letter after letter to my office urging me to clamp down on those nasty speculators will do the exact same thing to UK MPs in Westminster.

And I would be highly surprised if a government of any political colour would want to spend political capital and go against those constituents who feel so strongly on the issue.

I’ll leave you with my personal observations to ponder over drinks this evening.

The politicians on the left of the political spectrum have a vaulted opinion of those in your sector.

They give commodities traders a huge amount of credit for being innovative and creative in finding ways to game the rules.

Hence there are so many anti-avoidance provisions and mechanisms that have been dreamed up by the politically motivated to avoid loopholes and work arounds.

Personally, as a former financier, I have a slightly different view that I have great confidence that you will use that creativity and innovation to find ways to make the regulation work in practice and achieve the goal that we all have an interest in achieving.

That of fair and effective markets.