(Adds more detail on derivatives legislation)

BRUSSELS, Jan 13 (Reuters) – Speculation in commodity derivatives has been “scandalous” and needs to be regulated carefully, the European Union’s nominee for chief financial watchdog said on Wednesday.

“Why do we have this speculation we have had over the last two to three years in raw materials,” Michel Barnier, EU internal market commissioner-designate, said.

“I am talking about speculation which to me is scandalous on agricultural raw materials … We have to do something about that,” Barnier told a confirmation hearing in the European Parliament.

The European Commission has the sole right to initiate pan-EU financial services legislation and is expected to put forward a draft law by mid-year to regulate the vast off-exchange traded derivatives market.

The Commission would be implementing a pledge it made along with other members of the G20 rich and developing countries in September to increase transparency in the derivatives sector, such as central clearing of privately negotiated contracts.