COMMODITY RISK MANAGEMENT
trading in order to create a safer trading and funding environment. Whereas the U.S. Federal Reserve, Dodd Frank or Basel III etc. appear to rain down on physical commodity markets and commodity financing, I am campaigning for a more systemic and transparent evaluation of differentials. Banks must understand the concept of differential and must be able to anticipate, or at least monitor, physical differential volatility. As such, and because
merchants
operate with the banks’ money, they must accept an ongoing dialogue and position disclosure (to whoever is funding the trades). Trading positions will therefore be benchmarked
on a regular basis in way comparable to the marked to market process for exchange traded derivatives. Positions will also be kept in a size commensurate to the financial means of the merchant. Banks could therefore reconcile their differential valuation with those of the auditors, thus being able to flag notable discrepancies and question the merchant about the disparity.
There must also be a corollary to such a proposition: if banks generate a safer trading environment by risk managing physical differentials in a concerted way with their merchant clients, regulatory bodies should accept a review of the existing capital
... because merchants operate with the banks’ money, they must accept ongoing dialogue and position disclosure ...
adequacy ratios. Consequently, a reduction of the capital adequacy ratio should ease the access to cash for borrowers and at more favourable rates. Overall, this Physical Commodity Differential Risk Management system will benefit all participants in the commodity trading, funding and regulatory chain. •
Jean-Michel Boehm is co-founder and Director of Tedorius Ltd; a commodity advisory and
consultancy partnership specialising in exchange traded derivatives and physical commodities.
E:
jean-michel.boehm@
tedorius.com www.tedorius.com
19-20 May 2014, Hong Kong
Aluminium 200+
World
delegates
Book now and save US$300
Key speakers include:
- Bob Wilt, President, Global Primary Products, Alcoa - Yu Dehui, Vice President,
China Power Investment Corporation
- Bruce Cox, President & CEO, Pacific Aluminium - Oleg Mukhamedshin, Deputy CEO, Director for Strategy and Business Development, RUSAL
- Michael Lion, Chairman and Director, Sims Metal Management Asia Limited
- Tolga Egrilmezer, EVP Business Development, Sapa Group - Rebecca Brosnan, Head of Asia Commodities, Hong Kong Exchange
- Andrew Wood, Group Executive Strategy & Development, Alumina ltd
-Wang Feihong, Senior Analyst, China Minmetals bvNon-Ferrous Metals Co LTD
For more information and to book your place:
www.worldaluminiumconference.com Media Partner:
2014
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