Commodity trading both on and off exchange could face
tighter scrutiny after the publication of a report into the
market by UK's Financial Services Authority (FSA).
The report, published on 26 March, outlines the risks and
challenges associated with commodity trading in reference to
both exchanges and firms using the marketplace. This is
something which the watchdog said has been highlighted by the
significant increase in trading participation which it says
poses a threat to financial stability.
"There has been a significant expansion in commodities
investment in recent years, bringing with it a range of new
participants. These developments raise various risks and
challenges for those involved. It is essential that all parties
fully appreciate and address these risks," the report said.
FSA claimed that trading firms are very susceptible to
market risks. In particular, the report highlights the risk of
limited expertise within the commodity market. "As firms have
expanded their commodities investment activities, or have
entered these markets for the first time, they have struggled
to recruit staff with the necessary experience. Some firms are
transferring staff from the fixed income areas of their
business, or staff with experience of derivatives but not
specifically commodity derivatives," it said.
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