Reports Disruptive Technologies in Commodity Trading | Page 5

Disruptive Technologies in Commodity Trading Markets
A ComTechAdvisory Report
AN INDUSTRY BUFFETED BY CHANGE
In the last decade, the commodities industry has been experiencing significant change from a
variety of influences and on multiple fronts. These include , but are not limited to:
- Increased and intensified regulatory and stakehold-
er oversight – In the wake of the financial crises of
2007/2008, new regulations have arisen, partic-
ularly in Europe and the US, that directly impacted
most players in commodity markets. These new reg-
ulations, ranging from regulations like MiFiD2, EMIR
and ReMIT in Europe and Dodd Frank in the US, to
issues such as the Trade Facilitation and Trade En-
forcement Act of 2015 (TFTEA) were designed and
implemented to better ensure a fair and competi-
tive trade environment. Unfortunately, their impacts
have been a bit uneven and have required significant
changes in the way in which commodity-centric or-
ganizations manage and track their activities. For ex-
ample, TFTEA prohibits all products made by forced
labor, or child labor, from being imported into the
United States – requiring operational vigilance and
traceability of all transactions throughout the supply
chain. Other regulations, both existing and emerging,
focus on other aspects of trade, such as sustainability
(green energy), have and are dictating similar chang-
es. In total, since the global financial crisis, a raft of
regulations and new shareholder requirements (par-
ticularly from trade finance banks) have emerged that
have particularly targeted trading – requiring “prop-
er” and visible risk management techniques, report-
ing of trades to regulatory bodies, establishing limits
on trading positions and prohibiting certain trading
practices that could be deemed as manipulative. Few
corners of the commodities supply chain, from source
to consumption, have been left unaffected by these
changes - adding significant complexity, operational
risks and incremental costs to all market participants
involved in the procurement, sale, movement or use
of commodities,
- Geopolitical risks have exploded in recent years and
months, impacting commodity prices and shifting
global trading patterns. These risks and uncertain-
ties include the still emerging impacts of BREXIT,
increasing tensions between the US and Iran (includ-
ing the abandonment of the Iranian nuclear deal and
imposition of oil export sanctions on that country by
the Trump administration), the tenuous cartel-like re-
lationship between OPEC and the Russians, and the
increasingly protectionist trade measures primarily
by the United States and the increasing potential for
trade wars. All the while, continuing economic chaos
in Venezuela and ongoing military conflicts in Syria,
Yemen and elsewhere continue to add to the uncer-
tainty - driving increased price volatility, shifting sup-
ply chains, increasing costs and creating greater risk
for all commodity traders.
- The rise of renewables has had a large impact on
energy trading in many locations, but particularly in
Europe and the US, where, in both geographies, the
generation mix has become increasingly reliant on
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