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15 June 2007

CEBS consultation on commodities business





CEBS published a consultation paper on the risks arising from commodities business and from firms carrying out commodities business. The report responds to the second part of a Call for Advice issued by the Commission in August 2006. It report concludes that at the market level the risks arising from commodities business and the risks in other financial markets are generally the same and that these risks exist basically across all types of products. In nearly all markets the majority of transactions are carried out OTC. Therefore, in the absence of the use of risk mitigation significant counterparty credit risk arises. Other relevant risks identified are market risk, operational risk, legal risk and liquidity risk

Systemic risk crystallizes through contagion which is transmitted via market participants' direct and indirect interdependencies. While the perceived interconnections may give rise to systemic risk concerns, their extent may depend on the size of the respective markets for commodities or exotic derivatives relative to the wider financial market or the related industry. Systemic risk concerns may vary widely across the different markets/underlyings and no generalization can be made.

The report also touches on the specifics of the commodities markets/business and their possible relevance to the prudential treatment of the variety of firms that are active in the commodities sector

Deadline for comments is 27 July 2007. An open hearing will take place in London on 9 July 2007.

Press release
Report
Annexes I-VIII
Annex IX
Annex X
Annex XI



© Graham Bishop


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