By Simon Miller

The EDHEC-Risk Institute has slammed a paper by public interest group Finance Watch as “simply wrong”.

The paper, Investing not betting: Making Financial Markets Serve Society called on speculators to have a minority role in futures market and that excessive speculation undermined the commodity price formation mechanism. In addition it said there should be a linear relationship between a commodity’s supply-and-demand data and its price.

However, in response, the Institute described the calls as “simply wrong” and warned against implementing “speculative regulations” in response.

The author of EDHEC’s position paper, Who sank the boat, Hilary Till said modern commodity futures markets were the result of 160 years of trial-and-error efforts. As a result, there has been the creation of an effective price discovery process, which, in turn, assists in the coordination of individual efforts globally in dynamically matching current production decisions with future consumption needs in commodities.

Till added: “Before performing surgery on these institutions, we suggest that Finance Watch’s supporters tread carefully and not adopt “speculative” regulatory proposals whose ultimate effects are unknown. We further recommend that European Union policymakers instead consider studying market practices globally and then adopt what is demonstrably best practice, rather than invent new untested regulations.”

Although the Institute agreed that concerns over food and oil price spikes were full justified, it said that it was concerned that Finance Watch’s proposals in restricting speculation “fall somewhere in the continuum of being a placebo to actually being harmful to the goals to which they aspire”.

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