You Have Four Days to Comment on this Important Commodities-Trade Report; Tech Impact Under Spotlight

January 14, 2022 — LONDON: Commodity market regulators around the world are trying to tackle some of these key issues:

Multi-market trading abuses – Regulators have encountered abusive trading practices
that involve trading not only in the futures market but also involve OTC physical
commodity derivatives markets and/or the underlying physical commodity. Such
practices require an appropriate Market Authority to put into place a robust surveillance
and enforcement structure that is designed not only to have the powers and techniques
to address abusive conditions affecting individual markets, but also to actively detect
and respond to abusive trading practices that might involve interaction between
multiple markets.
• The impact of futures trading on physical commodity markets – The financialization
of global commodity futures markets (i.e., the increased role of commodities as an asset
class for investors), has contributed to growing trading volumes
. This has raised
questions whether such financialization has improved price discovery or whether the
increased investment into derivatives markets has contributed to price and volatility
surges in the futures markets that affect the underlying commodity markets.

Principles on Technological Developments in Commodity Derivatives Markets
Principle 22: Direct Access
– Where direct access to commodity derivative
markets is offered or permitted, relevant Market Authorities should ensure that
a clear framework, including appropriate policies and controls, is in place to
facilitate such direct access by market participants, including non-financial
Direct Electronic Access (DEA) refers to automated order routing systems, sponsored access,
and direct access by non-registrant/non-intermediary market members to markets. Securities
and derivatives exchanges are predominantly electronic, which has facilitated their operations
globally through various forms of communication. Spurred by the increasing demand by
customers for access to global markets, the means to access markets has evolved through
continual innovation. Increased access helps promote market efficiency, competition and
participation. The ability to transmit orders directly to a market in real time gives DEA users
greater control over their trading decisions, lowers transaction costs, and reduces latency of
execution time.
While it brings various benefits, DEA has also introduced several regulatory challenges and
risks to markets, intermediaries and their regulators.
• To what extent a user may access markets outside of the infrastructure and/or control of
market intermediaries
, which challenges intermediaries’ traditional risk management
approaches and may make rule compliance and monitoring more difficult, particularly
with regard to market manipulation and insider dealing;
• The creation of incentives for intermediaries/customers to gain execution advantages
based on the type and geographic location of their connectivity arrangements, which
raises potential fairness concerns; and
• Facilitating algorithmic trading through automated systems, which raises issues of
capacity and the potential need for rationing bandwidth. Indeed, some algorithmic trading
systems are capable of transmitting several thousand order messages to a market in less
than a second.

There’s also this in parallel:

IOSCO commodities report:

The Board of the International Organization of Securities Commissions (IOSCO) has published
this Consultation Report with the aim of reflecting the changes and developments in the
commodity derivatives markets since the publication of the existing IOSCO Principles for the
Regulation and Supervision of Commodity Derivatives Markets in 2011.


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