The Changing Face of Global Commodities Markets: Understanding the role of trading houses

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Cosmina Amariei, Jan Martin Frie

Following up a major report published last year on price formation in commodities markets, on March 20th, ECMI and CEPS co-hosted a presentation by Professor Craig Pirrong’s of his report “The Economics of Commodity Trading Firms” and how they manage commodities risks. A panel of experts discussed the policy and regulatory challenges posed by an increasingly complex interaction between commodities’ physical and financial markets, and the potential systemic importance of commodity trading houses.

Answering to market practitioners, Valerie Ledure from the European Commission argued that EU regulations, such as MIFID II or EMIR, envisage preserving physical trading activities via exemptions or transitional arrangements for financial instruments of non-financial entities, if their financial activities can be regarded as ancillary to their core business and for hedging purposes only. Finally, Edward Lucas, from The Economist, argued that the Market Abuse Directive (MAD) has not given enough sanctioning powers to deter manipulation in several areas, including commodities benchmarks.