Precious Metal Markets — House of Commons, 2019-07-08
Topic: Domestic Commerce
John Philip Glen (Conservative, Centre-right): My hon. Friend is absolutely right and draws attention to the ever-expanding functional use of these metals in ever more sophisticated ways Precious metals allow businesses around the world to hedge their risks by reducing uncertainty about future prices. For example, a mining company can agree a price today for the gold that it will extract in the next year, safeguarding itself against potential future price movements and providing certainty over its income. Attempted market manipulation, such as the type that occurred in the US, undermines integrity, reduces public confidence and impairs the effectiveness of the financial markets. We take this extremely seriously, and it is therefore vital that we do everything in our power to detect and prevent such abuse Additionally, gold plays an important role in nations’ reserve policy. The Treasury’s role is to ensure that its choice for the strategic composition for the benchmark asset allocation of the reserves, including gold, meets the policy objectives of the exchange equalisation account. My hon. Friend raised several important questions, which I will attempt to answer. I want to refer first to the significant volumes of derivatives and his question about the potential risk for financial systems. Derivatives are an important risk management tool and are used to hedge positions in underlying assets against adverse movements. They allow financial institutions to identify, isolate and manage separately the market risks in financial instruments and commodities. It is internationally recognised in forums such as the G20 that derivatives need sound risk management. Global financial regulators work to ensure that the derivatives market has robust oversight, monitoring, reporting and controls. In the EU, the legislative framework, which includes the market abuse regulation and the markets in financial instruments directive, does this The market abuse regulation, or MAR, provides the Financial Conduct Authority, as the relevant national competent authority, with the powers it needs to detect and prevent financial market abuses, such as insider dealing, unlawful disclosure of inside information and market manipulation. The regulation has been regularly revised and updated, most recently three years ago in 2016. MAR covers all financial instruments traded on regulated markets, multilateral trading facilities and organised trading facilities in the EU. It also covers financial instruments not traded on such markets, where the instrument’s price or value is dependent on the price of a financial instrument traded on a regulated market, multilateral trading facility or organised trading facility. Included in this scope are exchange-traded commodity derivatives. This means that gold futures, for example, are in scope of MAR MAR imposes stringent requirements on UK trading venues and firms, which have a duty to detect and report market manipulation. Trading venues and firms are required to establish and maintain effective arrangements, systems and procedures to prevent and detect all types of market manipulation.