Commodity derivative markets are essential for the food and drink industry for:

• price discovery (to reflect underlying market fundamentals)
• hedging price risks of the underlying physical agricultural raw material.

Food and drink companies are commercial users of commodity derivatives on both exchange and Over-The-Counter (OTC) markets. The CIAA supports the creation of a level playing field, with fair value and opportunities for everybody who has a legitimate role in the entire supply chain.

The food and drink industry’s objectives:

• Derivative markets should reflect underlying physical market fundamentals (supply, demand and stocks).
• Well-functioning derivative markets should assist in price discovery and have high levels of liquidity in order to ensure efficient risk management/risk transfer.
• It is important to preserve affordable access to OTC derivatives allowing for customised hedging in cases where futures markets do not provide solutions.
• Derivative markets need to be transparent, and provide clear data to enable effective interventions by regulators to prevent abusive speculative positions.
• Transparency requirements and interventions by regulators should be smart (for example via careful use of dynamic margin calls or position/price limits).
• The liquidity and effective functioning of EU agricultural derivative markets should not be compromised.
• In case instruments are applied by regulators, it is essential to have sufficient transparency and certainty about the “rules of the game/rules of intervention”.
• Harmonisation and market oversight at EU level should avoid counterproductive interventions by national regulators.
• CIAA supports strengthening the role of European Securities and Markets Authority (ESMA) as the European supervisory body to ensure greater coherence between Member States.
• Regulatory action must be coordinated at international level to avoid regulatory arbitrage.

The revision of the Markets in Financial Instruments Directive (MiFID) should contribute to well-functioning agricultural derivative markets aimed at price discovery and price hedging. CIAA supports the Commission’s efforts to improve market transparency and robustness. Over regulation would clearly undermine this objective.

Reforming financial regulation is just one answer to address key challenges linked to supply, extreme price volatility and security of supply. Coherence is needed across all policy areas that have an impact on agricultural raw material supply (e.g. CAP, energy, trade).

(1) MiFID: Markets in Financial Instruments Directive
http://ec.europa.eu/internal_market/securities/isd/index_en.htm

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