ΙMPACT ON COMMODITY TRADING COMPANIES REGULATIONS DRIVEN BY SEVERAL INSTITUTIONS

Central banks Basel Committee ECB, FED, BoE, Financial regulatory authorities, SEC FCA FINMA, BaFin, Policymakers European Union United States

Impact on Commodity Trading Companies

Reduced access to financing

• Less availability of letters of credits
• Difficulty to raise syndicated and structured loans
• Increasing costs across all trade finance products

Complexity and cost intensity of trading activities are increasing

• Systems and processes given new reporting requirements
• Working capital requirements (clearing fees, margin, collateral)
• Increasing compliance requirements (monitoring, investigations, compli- ance framework, AML, sanctions)

Changes due to banks’ exit/spin-off commodity trading

• Less market making, reduced hedging tools
• Banks to spin off commodity trading units and sell physical assets

Commodity Trading Companies Directly or Indirectly Affected by Key Regulations

Regulatory Changes

Deleveraging of banks’ balance sheets

• Maximum leverage ratios
• Minimum target capital requirements
• Minimum liquidity ratios
• Credit valuation adjustments

Regulation of OTC derivatives

• Central clearing and reporting
• Capital and margin requirements
• Reporting to central trade repository
• Daily market-to-market/collateral needs
• Trading on organized trading venues
• Position limits
• Regulatory oversight/interventions

Regulation of European power and gas markets

• Prohibits market abuse in the whole- sale market

Limits to banks trading activities

• Ban of proprietary trading (financial, physical)
• Potential limits to banks ownership/ control of physical trading assets (e.g. storage)