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<p>The Government believes effective commodities markets regulation is a key part
of ensuring economic stability. This is a lesson reinforced by both the food and financial
crises in the 2000s. In response to G20 commitments, the EU put in place a regime
that sets limits on the amounts of commodity derivatives that market participants
can hold, to ensure speculation does not lead to economic harm.</p><p> </p><p>The
Government supports the application of position limits to the most volatile commodities
(including key energy and agricultural products). However, the regime that we have
inherited from the EU is overly complicated, needlessly burdensome and poorly designed.
In particular, it unnecessarily captures all exchange traded and economically equivalent
over-the-counter commodity derivative contracts including those that have low levels
of low volatility and risk. This undermines efficient pricing in many such contracts
and creates burdens for firms.</p><p> </p><p>To address this, the Financial Services
and Markets Bill will ensure exchanges can once again set position limits, within
an FCA framework. Exchanges are well placed to ensure that such position limits only
apply to contracts that are subject to high volatility. Agricultural products and
other key physically settled contracts such as oil and gas will remain subject to
position limits. The FCA will also powers to intervene to set position limits if need
be.</p><p> </p><p>These changes were consulted on and received broad support[1] and
is in line with the Government’s G20 commitments.</p><p> </p><p>[1] Wholesale Markets
Review Consultation: <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998165/WMR_condoc_FINAL_OFFICIAL_SENSITIVE_.pdf"
target="_blank">https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998165/WMR_condoc_FINAL_OFFICIAL_SENSITIVE_.pdf</a></p><p>Wholesale
Markets Review Response: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1057897/Wholesale_Markets_Review_Consultation_Response.pdf</p>
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