The pandemic and the war in Ukraine have highlighted weaknesses in commodity markets where a “significant” concentration of firms, banks, exchanges and clearing houses threatens to pass losses on to the wider economy, he said on Monday. financial control body of the G20.
The Financial Stability Board’s (FSB) deep dive into commodity markets came after regulators expressed concern that they could not get a full picture of an expanding sector that includes on- and off-trade derivatives trading. stock market, physical shares, irregular data and producers spread all over the world.
European natural gas and metals prices doubled, while oil and wheat rose sharply after Russia’s invasion of Ukraine, prompting an increase in cash or margin calls in related derivatives.
The FSB, which coordinates financial rules for G20 economies, said it forced governments to provide liquidity to some cash-strapped market participants.
The report notes, however, that there was no major market disruption – with the exception of nickel on the London Metal Exchange (LME) – and a limited impact on the rest of the financial system.
But the fallout from higher nickel prices echoed concerns about large, concentrated positions and commodity opacity in general.
The commodities market has adapted to the stress by switching to opaque over-the-counter (OTC) or over-the-counter contracts where margin requirements are less stringent, making the links between commodities and banks more complex , according to the report.
The FSB said a small number of non-financial trading companies played a disproportionate role in the trade.
“The juxtaposition of this concentration and interrelationships in the commodities sector, along with large and leveraged commodity traders, less standardized margin practices and opacity in OTC markets, could combine to propagate losses “, the report said.
The FSB said the vulnerabilities of commodities are similar to those of non-bank financial intermediaries as economies entered Covid-19 lockdowns and are now being addressed.
“We will undertake work to improve market participants’ liquidity readiness for margin and collateral calls … and to identify data gaps in regulatory reporting,” said the FSB chairman and head of Dutch central bank. Glass knot said
