Monday, September 5, 2011

Sarkozy Calls for Commodities Rules

Monday, September 5, 2011

BRUSSELS—French President Nicolas Sarkozy on Tuesday ramped up calls for increased regulation of the trading of commodities such as oil, wheat and copper, invoking countries' fight against the mafia in a rare speech to policy makers here.

[sarko]Agence France-Presse/Getty Images

France's Nicolas Sarkozy, in Brussels on Tuesday, ramped up his rhetoric in urging the EU to regulate commodities despite a lack of consensus.

In the speech at an EU conference on raw materials and commodities, he called on the European Union to follow the U.S. in passing tough financial-market legislation. In particular, Mr. Sarkozy called for minimum cash deposits for derivatives trades, a central global registry for all commodities trades, and drafting new rules against "market abuse," although it remains unclear how exactly that is to be defined.

He took aim at trading houses like Glencore International AG, whose initial public offering earlier this year set a record. Without naming the company, he said a record $60 billion IPO this year for "a leading commodities trading concern" was "an emblematic episode" illustrating how trading of raw materials through financial contracts had expanded in recent years.

He said the "gap between the reality of physical markets and that of financial markets has widened" and blamed this "financialization" phenomenon for bringing the world "to the edge of a precipice."

France currently holds the rotating presidency of the Group of 20 leading economies, and Mr. Sarkozy said France wanted the group to "adopt common principles of regulation and oversight, applicable to all derivatives markets for commodities and raw materials." The next G-20 summit is scheduled for Cannes, France, in November.

The context of Mr. Sarkozy's speech was remarkable, analysts said. European Commission President José Manuel Barroso and Christine Lagarde, French finance minister and prospective International Monetary Fund Managing Director, sat in the front row.

"The symbolism of this speech was extremely important," said Karel Lannoo, head of the Centre for European Policy Studies, a Brussels-based think tank. "He doesn't often speak in public in Brussels like this. This is France trying to recover its status in the EU that it lost to Germany during the euro crisis."

Mr. Lannoo noted that Mr. Sarkozy lectured Mr. Barroso "as if he were a student."

Mr. Sarkozy has been a strong proponent of financial-market regulation, but his language has recently become more specific and forceful. His speech comes as the European Commission, the EU's executive arm, debates several initiatives to regulate derivatives and commodities trading.

The EU, he said, should "be inspired by what the U.S. already has done." Last summer, U.S. legislators passed the Dodd-Frank financial overhaul, which consolidated regulatory agencies, forced more derivatives trading onto exchanges and tightened regulation of credit-rating firms.

Mr. Sarkozy wants the EU to go further, especially in regulating what he called speculation. "In oil, the size of financial markets is currently 35 times that of the physical market," he said on Tuesday, his voice rising. "In agricultural raw materials, on the Chicago Mercantile Exchange alone the total of derivatives annually exchanged is 46 times the world production of wheat." This, he said, "is not how a market economy should function, and we need to act."

"The determination [to regulate financial markets and trading houses] by France is total. I hear that we need fair competition between financial markets, and that we [shouldn't regulate too much]. I know this argument. But let me ask a question: Should we all give up fighting the mafia just because one country fails to fight the mafia? If a country has a deficit in one regulation, does the world have to follow that country?"

Glencore said Mr. Sarkozy's speech didn't concern it because it was engaged in trading physical commodities, not speculation. "We mine and farm commodities in more than 30 countries world-wide, increasing global supply," Simon Buerk, a spokesman, said in an email. "On the marketing side we are engaged in physically moving commodities around the world, ensuring they reach the customers that need them in the most efficient way possible."

Derivatives and futures markets "are already well regulated," said Brian Durkin, chief operating officer of the CME Group Inc., which operates the Chicago Mercantile Exchange. U.S. markets would support a move to align European market rules with those in the U.S., which already has cash deposit requirements in certain circumstances and rules on market manipulation, he said.

A commission spokeswoman declined to comment on Mr. Sarkozy's speech, saying that speeches by two commissioners at the conference were a sufficient response.

Mr. Barroso said the commission will present a proposal in October to force mining companies to disclose more financial information, even if they're not listed. "The commission will publish proposals in October, including an obligation on companies to publish information on their activities," he said. "That is essential to fight the corruption which is seen in some trades. I would appeal to all partners to follow the same approach. Only co-ordinated global action will produce a real solution."

Internal markets commissioner Michel Barnier, who spoke after Mr. Sarkozy, said the commission would propose rules limiting the size of the position any one company can take on financial markets. "A bit like the Americans, we are going to make sure you are not having a dominant operator on the market," he said.

Write to John W. Miller at

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