"A shocking crime was committed on the unscrupulous initiative of few individuals, with the blessing of more, and amid the passive acquiescence of all." Tacitus
With our stock, bond and other financial markets in the throes
of algorithmic trading in pools both “dark” and clear, and behemoth positions are front run and exited in nanoseconds, we now learn that traders seek to apply these same strategies and mathematical engines to the commodities markets.
Would you agree that society has been injured by the trading programs affecting the extra market pricing
of monetary instruments? What further harm may be expected as these same techniques are used to interfere in the pricing
of food, fuel, and other basic goods? A world
of plenty, priced injuriously via light speed manipulations? Manipulations, I might add, that have nothing to do with the efficiency
of the targeted commodity market, and that will be carried out by entities that have
no legitimate function whatsoever in the supply chain
of the commodities whose values they will influence.
My worry is that “passive acquiescence” will ultimately yield when the basics
of life are targeted for profiteering, lest private and public sector leaders “work out a mechanism to stabilize agricultural commodities prices” and the prices
of other common necessary goods.
US Futures Markets:
In the Crosshairs
of the Algorithmic Revolution
Executive Summary
The futures markets have a target on their backs, and a host
of newer market stakeholders are taking aim. Beyond the demands
of traditional futures players, electronic market makers, hedge funds, and long-only asset managers have been and will continue to forge strategies with futures woven into their core. Brokers, vendors and exchanges are meeting these accelerated demands with a spectrum
of new solutions. While the outlook for overall futures volumes remains murky in the near term, the importance – and ultimately the volume –
of futures trading among these non-traditional customer segments is set to grow over the longer term….
As adoption
of automated futures trading increases, overall global volumes in these markets will increase as well. This growth will come in four distinct forms: expansion
of strategies, user base, and products, as well as greater focus on risk management....
How quickly and to what extent this growth will occur remains to be seen, particularly in the aftermath
of historic market dislocations. However, since trade automation is fast becoming a competitive necessity for all players and achieving consistent risk-adjusted returns remains a perpetual challenge, the inclusion
of futures as a broader mainstream asset class is inevitable, and the use
of algorithmic methods to navigate these markets is required....
http://www.tabbgroup.com/PublicationDet ... tionID=530
Source: Reuters
13/11/2009
Nov 13 - Volatility in food and agricultural commodities prices has become a permanent feature
of global markets due to speculative trading, the chairman
of the world's biggest food group, Nestle, said.
Food prices spiked in 2008 due to a rally in agricultural commodities, triggering riots in poor countries and panic buying in rich nations. Prices have fallen back since than but have remained volatile and are hovering well above 2006 levels. A long-term balance between supply and demand on grain markets, which had kept prices relatively stable over the past few decades, has been broken by increased consumer demand, especially in Asia, and by growing bioenergy demand, Nestle's Peter Brabeck-Letmathe said on Friday. Then speculative traders piled in and fuelled volatility, Brabeck told reporters at a private sector conference on food security ahead
of a food summit in Rome next week.
"The market has become much more volatile, because you have so much speculation in it ... I think this has become a permanent shift," Brabeck said. He said it was up to politicians to work out a mechanism to stabilize agricultural commodities prices. "It would be very difficult to find a stabilizing system that can counterweigh this enormous amount
of money that is coming into the market," he said referring to speculative flows.
A final draft declaration, expected to be signed at the summit next week and seen by Reuters, says world leaders will "consider non market-distorting international measures to mitigate the impact
of food market volatility on the poor." It did not elaborate. The draft says the leaders will ask international organizations to examine "whether a system
of stockholding can be effective" in dealing with price volatility and humanitarian emergencies -- an idea touted by G8 agriculture ministers earlier this year. French Farm Minister Bruno Le Maire said on Thursday the draft declaration was insufficient and that Paris wanted firmer proposals on regulating global agricultural markets. He cited development
of future markets for those commodities that do not already have one, as well as the creation
of regional grain stocks, as possible measures.