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  •  Not Just Regulated Exchanges but OTC Derivatives (2+ / 0-)
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    Jose Bidenio, antirove

    The IPE is described as a regulated exchange (such as the NYSE), which limits it's danger in certain ways.

    The unregulated OTC Derivative market and it's impact on commodity prices may be a bigger threat.

    I know most "experts" seem to say otherwise.

    Most "experts" also denied or ignored the inflationary impact exerted on housing prices from the unrestrained growth of mortgage-backed securities (OTC Derivatives) prior to and contributing to the financial crash of 2008.

    Now the oil companies themselves are increasingly putting themselves into the game.

    ...Nervousness also exists about the volumes of trading being done within energy companies and other commodity trading houses. Oil companies and trading houses have been steadily extending their reach beyond their traditional focus on physical commodities into exotic over-the-counter derivatives to serve customers, a trend that some expect to accelerate now that their capital advantage over banks is widening sharply.

    Oil companies such as Total and BP and traders including Cargill and Vitol are in effect shadow banks for the commodities industry, replicating the services that the likes of Goldman Sachs and Morgan Stanley monopolised for years. That might mean selling an oil swap to an airline or an OTC corn option to a farming group.

    Trading and oil company executives see their move towards derivatives as a natural extension of their business, saying the OTC deals help their clients to hedge price risk. But some analysts say the activities, which are largely unregulated, bring big risks to the system. Without the capital requirements imposed on banks, a default becomes more dangerous, they say. The shift also awakens unwelcome memories of Enron, the failed US energy company whose traders severely disrupted the California energy markets in 2000-01 as well as costing investors billions of dollars.

    Recently, some trading companies have withdrawn from providing commodities derivatives services to customers after losing large amounts. Japan’s Mitsubishi Corp is to close its oil derivatives business by March 2012. The unit made heavy losses on jet fuel hedges related to the collapse of JAL, the Japanese airline.

    Financial regulation: The money moves onFinancial Times online
    By Patrick Jenkins and Brooke Masters
    Published: September 14 2010 20:11 | Last updated: September 14 2010 20:11

    We'd rather dream the American Dream than fight to live it or to give it to our kids. What a shame. What an awful, awful shame.

    by Into The Woods on Mon Apr 25, 2011 at 01:16:53 PM PDT

    [ Parent ]

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