* Says FSA should regulate market abuse, not prices
* Regulatory arbitrage between regions "a risk"
* Says will have a big voice within new watchdog ESMA
By Emma Farge
LONDON, Nov 10 (Reuters) - Britain's Financial Services Authority (FSA) plans to oppose position limits for commodities ahead of new EU rules to curb speculation on the grounds it is not a "price regulator", an FSA derivatives expert said.
The FSA stance leaves it at odds with U.S. authorities and France, which is spearheading tougher commodities regulation as head of the G20 and has submitted detailed proposals to the European Commission for collective action.
U.S. regulators are required to unveil trade caps by mid-January and the European Commission is expected to release a draft proposal addressing this topic as part of a review of the Market in Financial Instruments Directive (MiFID) in the first quarter of 2011.
The FSA said last year it advocates "position management" -- where a regulator can instruct a particular trading party to close or reduce a position -- the amount of a commodity that an investor holds -- over general position limits fixed in advance.
But it has not so far revealed its stance in the European debate.
Oil prices this week scaled a new two-year high above $87 a barrel while gold hit a record high above $1,400 an ounce and other commodities have also surged.
"It's not our job to control prices. We are not a price regulator," FSA manager for derivatives David Bailey, who represents the regulator's views to European authorities, told Reuters in an interview.
"The statutory objective we've been set is to let markets define prices but ensure those markets operate on a fair, efficient and orderly basis. From that perspective, position management is an appropriate tool," he said, referring to both exchange-traded futures and the $600 trillion over-the-counter (OTC) derivatives market.
The UK is home to key European commodity markets and the base for the London Metals Exchange and NYSE Liffe exchange.
SPECULATION
Politicians blamed speculators for boosting food and energy prices to record highs in 2008 while spikes in wheat and cocoa prices this summer and surging commodity prices in recent weeks have given fresh impetus to the debate.
Italian Prime Minister Silvio Berlusconi said in a letter to the G20 summit on Wednesday that the group's leaders must adopt tighter controls to dissuade speculation in commodity markets and curb sharp price volatility.
"Speculating can add to demand to buy or sell but we need to separate quite clearly manipulation and abuse from speculation," said Bailey, adding, "Volatility is to a large extent driven by supply and demand and it's not our responsibility to control either of those."
Bailey declined to comment on whether there are other opponents of position limits in Europe, but added that he thinks objectives are similar even if methods differ.
Bailey acknowledged that there was a possibility for regulatory differences to emerge between regions, such as Europe and the United States, which could result in a shift in volumes but said the FSA is working to minimise this.
"There's always a risk across different jurisdictions and legal constructs that an opportunity for regulatory arbitrage may be created....We shouldn't in a robotic fashion follow exactly the same methods," said Bailey.
He said he expects the FSA to retain its influence as a national regulator after the new European watchdog overseeing commodities, the European Securities and Markets Authority (ESMA), starts in January.
"Bearing in mind that in many cases, a significant portion of the relevant markets are located within London and the UK, we will have a very big voice in ESMA. Instead of cooperating with ESMA, we will be an integral part of ESMA," said Bailey.
He added that he expects the FSA to cooperate with ESMA to create a more robust regulatory environment.
"We've been increasingly proactive for many years. ESMA will help to coordinate and facilitate that on a European level." (Reporting by Emma Farge; editing by Anthony Barker)