The recent growth in commodity markets with record prices, high volatility, and the high returns to be gained have attracted a wave of new investors and firms into what was previously viewed as a specialist market. These new entrants include hedge funds, pension funds, high net worth individuals and even a small number of retail investors. The level of funds being invested is expected to grow and, unlike previous cycles, to remain. This has given rise to a number of risks and challenges for both established and newly arrived participants.
FSA as part of its oversight of commodity markets regulates both participant firms and infrastructure providers. In its assessment of the impact of the growth in the market, FSA has identified the risks and challenges facing the regulated community as including:
- Lack of skilled and experienced staff
- Insufficient system capacity to cope with large trading volume
- Failure to put apppropriate risk management systems and procedures in place
- No sharing of knowledge between new participants and traditional participants
- Deficient monitoring of market abuse
Although direct investment by retail investors is limited at present, financial firms are responding to growing consumer interest by developing products which will allow individuals to gain an element of exposure to commodity markets. These changes combined with a shortage of financial services professionals who understand the market could result in consumers buying products they don't fully understand. Indirect exposure of retail investors is also increasing through pension fund investment.
HK Government is also studying the feasibility to develop the commodities market. The above-mentioned risks and challenges should also form part of its agenda.
P.S. SFC has recently released a FAQ on commodities futures / commodities index funds.
No comments:
Post a Comment