Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

FSA publishes review of the commodities market

Commodities / Stock Brokers Apr 01, 2007 - 01:12 PM GMT

By: Submissions

Commodities

The Financial Services Authority (FSA) has today published a paper which examines the recent growth in investment in commodity markets. The paper, 'Growth in Commodity Investment: risks and challenges posed for commodity market participants', concludes that markets have changed significantly bringing new issues which need to be understood and acted upon by participants.


Market Changes

The recent growth in commodity markets with record prices, high volatility, and the high returns to be gained have attracted a wave of new investors and firms into what was previously viewed as a specialist market. These new entrants include hedge funds, pension funds, high net worth individuals and even a small number of retail investors. The level of funds being invested is expected to grow and, unlike previous cycles, to remain.

Hector Sants, FSA Managing Director, Wholesale Business said:

"The recent growth in the level of investment in commodity markets, the development of new products and a changing user base has combined to create a greatly changed environment in the commodities markets over the last few years. This has given rise to a number of risks and challenges for both established and newly arrived participants.

"The risks we have identified should not come as a surprise to those active in the market but serve to focus attention on the areas we consider to be of most impact and importance. Firms and exchanges need to consider how they have addressed these risks and continue to mitigate against them in the future."

Risks and Challenges for Market Participants

The FSA as part of its oversight of commodity markets regulates both participant firms and infrastructure providers. In its assessment of the impact of the growth in the market the FSA has identified the risks and challenges facing the regulated community as including:

Staffing/Compliance Resource – The pool of experienced staff with commodity market experience is limited by the small size originally of the market. Due to the growth in the market all regulated participants, including both firms and exchanges, face increased difficulties in recruiting appropriately skilled and experienced staff;

System Capacity – Large volume increases pose challenges to trading system infrastructure especially following the switch by many exchanges to electronic trading. Exchanges must ensure they have sufficiently robust systems to handle the growth in trading volume and trading flows in terms of both processing and monitoring;

Risk Management – Firms are facing increased volatility in some markets which raises risk of failure. Firms need to ensure they have appropriate risk management systems and procedures in place, including thorough testing and modelling of their algorithmic trading systems to ensure appropriate behaviour in any given set of circumstances. Those firms who invest in physical assets e.g. power stations will also need to consider the change in risk profile that this brings;

New Users – New participants though familiar with other markets may not share the same level of knowledge or understanding as traditional participants. These new entrants may also introduce new trading techniques which traditional operators including exchanges need to be aware of;

Market Abuse – While no more open to abuse than any other types of financial markets, firms need to ensure they have adequate systems and controls in place to prevent abuse taking place. As a result of the growth in activity on these markets the FSA will focus more attention on monitoring them.

Risks and Challenges facing consumers

Although direct investment by retail investors is limited at present, financial firms are responding to growing consumer interest by developing products which will allow individuals to gain an element of exposure to commodity markets. These changes combined with a shortage of financial services professionals who understand the market could result in consumers buying products they don't fully understand. Indirect exposure of retail investors is also increasing through pension fund investment.

http://www.fsa.gov.uk


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules