Commodities SuperCycle a myth?

Full article. http://financialriskstoday.com/supercycle_superderivatives.php Market watchers would be forgiven for thinking that commodities have broken out from the traditional wisdom of cyclical markets and are heading for the heavens. Anyone remember some guy called Gordon Brown taking a similar view on ending boom and bust market activity. Anyone remember him? Investors and hedgers have bought into the received wisdom that commodity prices are only going in one direction – up – as part of a super cycle but with inclusive peaks and troughs. But is a commodities super cycle really underway or are we actually in a normal cycle? And in which case, is the received wisdom wrong and could commodities prices start to fall in the short to medium term?

CFTC’s Division of Market Oversight Issues Advisory Regarding Intraday Speculative Position Limits

On May 7th, the CFTC Division of Market Oversight issued an advisory regarding compliance with speculative positions limits emphasizing compliance during intra-day. This advisory clarifies that CFTC intends to use its regulatory authority to enforce ‘real time’ risk monitoring for compliance. This ruling will have implications for commodity trading firms, FCMs, algorithmic trading funds, hedge funds, and their risk managers. They must have real time risk management systems to ensure that they comply with the law. It will not be merely sufficient to just apply position limits at the pre execution phase. In the world of using algorithms for high frequency trading, this becomes even more important and necessary as witnessed in events of last Thursday (May 6, 2010) when high frequency trading caused precipitous downfall in equity markets.

In my opinion, monitoring risk in real time is an indispensible tool to ensure market stability. My recently written white paper on 4^th Quadrant commodity trading, I show that concepts applied to commodity trading emphasize the need for organizations to manage risk in real time. This recent CFTC advisory is an attempt to create external discipline to ensure that trading entities not have such concentration risk. Such concentration risk not only puts an entity out of business but also disrupts the market as a whole. Many FCMs enforce ‘pre execution’ position limits to limit order beyond a certain size. That is fine but it does not view overall position in conjunction with the trades already on an entity’s book. This requires a real time trading and risk system that monitors each trader’s total position along with the entity’s total position in real time. And it ensures that positions not only comply with the law but also comply with the internal risk policy and risk management’s best practices. Companies should have a risk system that can ensure real time position keeping and alerts. Companies need to develop a way to ensure connectivity with exchanges and FCMs to get positions in real time, or they buy risk systems from vendors.

I think that this ruling should start conversations in the IT, Risk Departments, and with the Principles of commodity trading funds (Algo funds, CTA, or hedge funds) about installing such systems. It can be a very low cost insurance policy to avoid liquidity squeeze. For further information and to share ideas, feel free to contact me at directly at SunGard Energy and Commodities:

Moazzam Khoja, CFA
SVP Strategy
SunGard Energy and Commodities
Moazzam.khoja@sungard.com
713-210-8136

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Kiodex Real Time provides a complete solution for monitoring intra-day compliance, please contact us for a free consultation :
Free Whitepaper and Intra-Day Compliance Monitoring Consultation

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About Moazzam Khoja, CFA
Moazzam is senior vice president of strategy for SunGard Kiodex. He has worked for the past thirteen years in the commodity risk management area including issues related to commodity derivatives valuations, structuring of complex energy and credit derivatives, and hedging process and analysis. He has authored several articles in leading industry publications to address these issues. He obtained his MBA from the Columbia Business School in 1996 and his chartered financial analyst designation in 2003.

Webinar: Successful Commodities Hedging - Making Intelligent Hedging Decisions

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Successful Commodities Hedging- Making Intelligent Hedging Decisions

Do you know how to measure the success of your hedging program? Uncertain how much of your exposure to hedge? Join SunGard Energy and Commodities and host speaker Moazzam Khoja for this complimentary 60-minute Web Seminar. Learn more about commodity hedging and it's strategic importance. Risk methodologies have been employed by the corporations for several decades to protect cash flows. However, the issue of how to set a hedge policy and whether to hedge or not baffle many corporations. A lack of familiarity with hedging tools and strategies compounds this confusion. See how an effective hedging program helps you to transform confusion into clarity. Learn more about the five step hedging process designed to help hedgers to make informed hedging decisions and whether or not their companies stand to benefit from a hedging program.  REGISTER NOW to learn more about an effective hedging process. Featured Speaker: Moazzam Khoja, senior vice president, SE&C  Date: December 3, 2009 Time: US: 10:00am CST, Europe: 5:00pm CET About Moazzam Khoja Moazzam Khoja, CFA is the senior vice president at SunGard Energy and Commodities. In this capacity he looks at the strategic issues facing SunGard customers in particular and commodity derivatives industry in general. He presents SunGard's Kiodex risk management solutions to enterprises that take commodity risks. He has worked for the past thirteen years in the commodity risk management area including issues related to commodity derivatives valuations, structuring of complex energy and credit derivatives, and hedging process and analysis. He has authored several articles in leading industry publications to address these issues. He obtained his MBA from the Columbia Business School in 1996 and his chartered financial analyst designation in 2003.

Best regards,

Sean Carnahan

Invitation to SunGard Web Seminar: New Regulatory Changes for the Gas Market: NAESB 1.9

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New Regulatory Changes for the Gas Market: NAESB 1.9

Is your gas business impacted by the NAESB 1.9 regulations? Are you prepared for compliance? Ready to utilize new capabilities? Join SunGard Energy and Commodities and host speaker Sylvia Munson for two complimentary 60-minute Web Seminars. Learn more about the specific changes that come along with NAESB 1.9. We like to hear from you how these changes will impact your business. NAESB 1.9 part 1: Learn more about the nominations, flowing gas, and invoicing changes. NAESB 1.9 contains a new standard 1.3.80 which requires pipelines to support flexible receipt and delivery points for existing nominations. This standard alone has the potential to be implemented differently by every pipeline. Our goal in this session is to find a small set of solutions that will meet all of your needs. NAESB 1.9 part 2: This sessions will explore capacity release, electronic delivery mechanism (EDM) and additional standards changes. You will learn about new requirement for pipelines to support index based transportation pricing and an extensive set of rules goes with those requirements. See, how new gas quality reporting requirements help you and learn how those should be implemented. REGISTER NOW for NAESB 1.9 part 1: Featured Speaker: Sylvia Munson, director, product management, SE&C  Date: December 1, 2009 Time: 1:00pm CST REGISTER NOW for NAESB 1.9 part 2: Featured Speaker: Sylvia Munson, director, product management, SE&C  Date: December 8, 2009 Time: 1:00pm CST About Sylvia Munson Ms. Munson directs gas operations and pipeline product management for SunGard Energy and Commodities. She has participated in the North American Energy Standards Board (NAESB) since its inception as GISB in 1995 and has served on its Board of Directors, Executive Committee and as chair of various sub-committees. Ms. Munson is a highly regarded speaker and author who has written various articles and contributed several to NAESB published books.

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Best regards,

Sean Carnahan

SunGard Energy & Commodities Web Seminar: Lessons for Financial Risk Management from the Great Recession

Register for this free SunGard Energy & Commodities Webinar
http://bit.ly/financialriskwebinar

What has the financial crisis taught us about risk management? Do you think the "reach for yield" distort the market's risk preferences?

Join SunGard Energy & Commodities and Dr. David Rowe in this complimentary 60-minute Web Seminar. Learn about the evolution of risk management, where it failed during the credit crisis and the lessons we learn from it. See, how these lessons impact the energy markets.

Learn from this expert in the risk management industry about:

• Statistical entropy - the inherent limits of quantitative tools 
• Importance of structural imagination - why we neglected dimension of risk analysis
• Self-Referential Feedback - the danger of corrosive feedback loops in pricing and risk management
• Complexity and Dark Risk - intransparency breeds hidden dangers
• Alternate Means of Valuation - ignore a possible failure of liquidity at your peril

Discuss with David the attention which has been paid to Value-at-Risk (VaR) as a tool for risk estimation and his definition for VaR not being the "worst case loss".

Below link is to register for this free SunGard Energy & Commodities Webinar
http://bit.ly/financialriskwebinar

o Featured Speaker: Dr. David Rowe, EVP, SunGard Adaptiv
o Date: October 29, 2009
o Time: 10:00am CST (4:00pm CET*)

Best regards,

Sean Carnahan

Invitation to SunGard Web Seminar: New Directions in Trading Carbon and Energy Efficiency

New Directions in Carbon Trading and Energy Efficiency

Do you want to know how your business can contribute to cutting carbon? Is carbon trading the right way forward? Join SunGard Energy and host speaker Tom Bainbridge in this complimentary 60-minute Web Seminar. Learn about the 'Carbon Reduction Commitment', a hybrid emissions trading scheme for energy consumption related emission which will be first introduced in the UK. This scheme applies to larger energy consumers in the public and private sectors, across the whole range of business and public sector activities, from April 2010. Get to know more about the interrelationship with other carbon trading schemes, and programmatic CDM. See how this scheme has already gained traction in India (where similar arrangements are to be introduced) and interest by legislators in North America and in the European Commission. REGISTER NOW to learn more about the Carbon Reduction Commitment. Featured Speaker: Tom Bainbridge, partner & head of energy group, Nabarro Date: October 21, 2009 Time: 10:00am CST*  (5:00pm CEST) About Tom Bainbridge Tom is partner and the head of the Climate Change & Energy group of Nabarro, a major UK commercial law firm, where he focuses on sustainable energy and other climate change matters. He advises private and public sector clients on various aspects of climate change policy, low and zero carbon energy and energy efficiency schemes, the carbon financing of other emissions reduction projects and emissions trading arrangements.  He is deeply involved in scrutiny of the Carbon Reduction Commitment, lobbying for clarification of problem aspects of the policy, advising clients how it will impact upon them and helping them to develop business strategies to minimise risks and maximise the benefits of the scheme. Tom has authored numerous articles and spoken on various aspects of environmental and energy law. He gave evidence before a Commons Select Committee on the then draft Climate Change Bill and he chairs the climate change working party of the UK Environmental Law Association. * For all Asia-Pacific customers: We will record this Web Seminar.

Privacy Policy SunGard Energy Solutions • 1331 Lamar Street, Suite 950 • Houston, TX 77010 USA www.sungard.com • Subscription Preferences © 2009 SunGard. Trademark information: SunGard and the SunGard logo are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.

 

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Webinar: The New Paradigm for Value at Risk

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The New Paradigm for Value at Risk

Does the global financial crisis have you questioning the use of Value at Risk as a risk management tool? How might the new Basle II regulations help prevent future disasters? Join SunGard Energy Solutions and Chris Coovrey in this complimentary 60-minute Web Seminar. Learn about  emerging new paradigms in Value at Risk arising from the unexpected and massive losses suffered by sophisticated financial institutions in the global economic crisis that began in 2007. In this Web Seminar, Mr. Coovrey will present this paradigm shift and its affect on many risk management best practices including the new changes in Basle II requirements. REGISTER NOW to learn more about the shift in Value at Risk. Featured Speaker: Chris Coovrey, senior quantitative developer, SES Date: September 16, 2009 Time: 10:00am CST*  (5:00pm CEST) About Chris Coovrey Mr. Coovrey is the senior quantitative developer for SunGard Energy Solutions where he focuses his efforts around risk and complex option valuation and development. He is a graduate of the US Air Force Academy and has a master of science in financial mathematics from the University of Chicago. Mr. Coovrey brings more than 15 years of experience in the commodity and fixed income industries, working for both private and public institutions in the investment and merchant space. His numerous roles have included: physical commodity trader; commodity derivatives trader; commodity structurer; desk manager fixed income and currencies trading and head of structuring/quantitative modeling for renewables and emissions. * For all Asia-Pacific customers: We will record this Webinar.

Privacy Policy SunGard Energy Solutions • 1331 Lamar Street, Suite 950 • Houston, TX 77010 USA www.sungard.com • Subscription Preferences © 2009 SunGard. Trademark information: SunGard and the SunGard logo are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.

 

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