A deal to regulate high-frequency trading and curb commodity speculation has been clinched by the European Union (EU), as policymakers attempt to clamp down on financial market loopholes.
After two years of work on the rules, negotiators from the European Parliament and Council came to an agreement late Tuesday.
The measures will set limits on positions held in commodity derivatives, curbing speculation in the area to limit their impact on food and energy prices.
Rules on high-frequency trading in financial instruments will also be imposed, requiring firms to have controls like "circuit breakers" in place – which stop the trading process if price volatility gets too high. Algorithms used will have to be tested and authorized by regulators.
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The measures – outlined in the Markets in Financial Instruments Directive, or MiFID – are part of the EU's attempts to avoid another financial crash.
Ed Parker, head of derivatives at law firm Mayer Brown, said the rules would "dramatically reshape" the way firms operating in the financial services sector would conduct their business.
"For the OTC (over-the-counter) derivatives market, there will be a seismic shift resulting in higher costs, tighter margins and reduced flexibility when hedging," he said in a statement.
"On the positive side increased transparency and investor confidence may be positive for the market. However, we won't know what the real impact will be until the regulators decide the fixed position limits, and whether any onerous approach will limit liquidity."