UK watchdog takes aim at new EU commodities, bond market rules

By Huw Jones

LONDON, Feb 4 (Reuters) - European Union rules that will introduce curbs on hundreds of commodities contracts to try to stop abuses are unnecessary, Britain's markets regulator said on Thursday.

The blunt criticism comes when Brussels is set to propose a one-year delay until January 2018 for the launch of the new rules, known as MiFID II. The delay is to allow market participants time to prepare for the far-reaching reforms.

Tracey McDermott, acting chief executive of Britain's Financial Conduct Authority, which polices the EU's biggest financial market, said MiFID II would regulate scores of insignificant contracts.

"We do not believe that it is necessary, as MiFID II requires, to have position limits for every single one of the hundreds of commodity derivatives contracts traded in Europe," McDermott said in a speech on Thursday.

"And I know there are concerns, frankly, that the practical details of position reporting were not adequately thought through in the negotiations on the framework legislation."

EU lawmakers and member states like Britain and Germany are jockeying behind the scenes for changes to finer points of the rules which aim to play catch up with trading technology and plug supervisory gaps highlighted by the financial crisis.

One element introduces Europe's first caps on how big a position a trader can hold in a commodity like grain or copper to stop speculators trying to influence prices.

McDermott, who is due to step down from her post in the summer, also took aim at another contentious element of MiFID II that is also subject to fierce debate: increased transparency in bond trading.

Asset managers and banks say that forcing them to publish prices they intend to trade a bond, in order to given others a chance to offer a better price, will shrink volumes as nobody will want to reveal their hand publicly.

McDermott said there was a balance to be struck between liquidity and transparency, and it would have been helpful if MiFID II would have allowed for the phasing in of the rules.

"The ability to learn from experience would have given markets a better shot at adapting smoothly to the new regime. As it is, it will be important to keep the functioning of the transparency regime under close review," she said.

(Reporting by Huw Jones; Editing by Keith Weir)