Shell joins BP in calls against excessive trading regulation

By Dmitry Zhdannikov and Ron Bousso

LONDON, May 20 (Reuters) - Royal Dutch Shell joinedfellow oil company BP on Wednesday in calling on Europeanregulators to refrain from imposing stricter capitalrequirements and greater disclosure measures on oil trading.

Last month, the head of BP's trading division Paul Reed saidsome markets could be exposed to severe stress because of somelooming EU regulations.

Mike Muller, vice president for trading at Shell, sided withReed's views on Wednesday, saying regulators would achieveundesired effects if companies and trading houses were forced tofollow stricter capital requirement rules or be limited in theirability to trade derivatives.

European authorities will implement a set of regulationsknown as the Markets in Financial Instruments Directive (MifidII) in 2017, which contains capital requirement directive (CRDIV) aimed at cutting systemic risks across equity, fixed incomeand commodity markets.

"They (trading desks at trading houses and oil majors) don'toperate banking licences... They are not involved in lendingactivity... A failure of a commodity firm is unlikely to lead toa bank run...," Muller told the Platts Crude Summit in London.

Both BP and Shell trading divisions employ hundreds ofpeople and trade millions of barrels of oil and refined productsper day. Shell will become even bigger when it finalises itsacquisition of smaller rival BG.

Earlier this year, trading house Trafigura funded researchwhich said that if Europe decided to impose new capitalrequirements on traders, they would be forced to shrink anddeleverage, ultimately making commodity prices more expensive.

Muller also called against introducing limits on derivativestrading - known as position limits - across the industry.

He said position limits should be applied only tospeculative players rather than those who trade physicalcommodities as they need derivatives for hedging.

But he also said that hedging at companies such as Shell isoften done upfront, even before the physical position is taken,which makes smart regulations an even more challenging task.

"Unattractive regulations would will force companies toflee," he said. (Reporting by Dmitry Zhdannikov, editing by David Evans)