Free Advice For Investment Money In Commodity Market

Free Advice For Investment Money In Commodity Market

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Two of the FSA’s statutory regulatory objectives are to maintain confidence in the financial system and to secure the appropriate degree of protection for consumers. Against these objectives commodities have traditionally been a specialised market, dominated by professional participants, so they have received less regulatory attention than the larger and more high-profile equity and bond markets. However, a significant bull run has been underway in commodities in recent years. Bull markets are nothing new but this time the number of participants and the amount of assets invested has grown significantly. Many are investing in commodities for the first time.MCX Gold and Silver Tips and call Click Here What risks and challenges arise from these recent developments in commodities markets?To answer this we spoke to several exchanges, hedge funds, pension funds and other firms active in the market. We identified the most recent developments in the market and saw how developing markets are changing the way firms conduct business (and vice versa). There are some areas of uncertainty between commentators, especially when attempting to determine the exact amount invested in commodities so our research is bound by these constraints. Where these uncertainties exist we have set out the range of estimates we were given. It is vital that firms, individuals and the FSA understand the full range of risks facing them. The purpose of this paper is to illustrate the changing nature of investors, the expanding range of products and to estimate the current level of investment in commodities markets. Most important, we identify and investigate issues facing the market and highlight potential risks and challenges. Section 3 of this paper describes the FSA’s current approach to regulating the commodities markets themselves and the firms that participate in these markets. Section 4 provides some background to commodities and what has made them an attractive investment. Sections 5-7 present our findings on the changing nature of commodities markets, specifically how and why commodity investment is growing and the new products available to investors. We discuss the types of investor and the methods by which they gain exposure to commodities. In Section 8 we highlight the challenges and risks we perceive in the market in light of our findings.7 Growth in Commodity Investment 3. Commodities market regulation the FSA does not have dedicated rules for commodities and commodity derivatives markets. Rather, its regulation of commodities markets is derived from several different regimes and its overall approach combines these. We list and comment on the different regimes in the following paragraphs. Recognised bodies Our most direct interface with the commodities markets is through regulation of Recognised Bodies (RBs) under FSMA. These are the exchanges and clearing houses (Recognised Investment Exchanges (RIEs) and Recognised Clearing Houses (RCHs) respectively. The three main UK-based exchanges that offer commodity derivatives markets are ICE Futures, London Metal Exchange and LIFFE. All of these exchanges are RIEs and they all clear though the London Clearing House, which is an RCH. FSMA prohibits any person from carrying on a regulated activity in the UK unless they are either authorised or exempt.1 Regulated activities are defined in FSMA and secondary legislation (the Financial Services and Markets Act 2000 (Regulated    Activities) Order 2001 (SI 2001/544) (the RAO)).2 Recognised Bodies (RBs) are exempt from the requirement to seek authorisation provided they remain within the boundary of their exemption.3 In summary, the RIE exemption covers the regulated activities that form part of the exchange’s business as an investment exchange or provider of clearing services.4 The RCH exemption covers the regulated activities that form part of the clearing services run by the clearing house.5 To qualify as an RB, exchanges and clearing houses must satisfy the relevant provisions of the Recognition Requirements set out in Statutory Instrument 2001 No. 995.6 FSA Guidance on the Recognition Requirements is set out in the FSA’s REC Sourcebook7, as are FSA notification rules. 1 S.19 FSMA 2 S22 and Schedule 2 of FSAM and the RAO 3 S.285(2) & (3) FSMA 4 S.285(2) FSMA 5 S.285(3) FSMA 6 The Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchange and Clearing House) Regulations 2001.

Growth in Commodity Investment

RIEs have a continuing obligation to satisfy the Recognition Requirements. These include requirements relating to the fair and orderly running of their markets, and the quality of those markets; the setting and enforcement of market rules; access to the market; complaints handling; and disciplinary action. See Chapter 2 of REC for full details. The combined effect of the requirements and their exemption from the full regulatory regime is that RIEs are considered front-line regulators of their own markets. The FSA’s relationship with the RIEs is more collaborative and principles- based than with the rest of the regulated community, largely working together to ensure the RIEs continue to satisfy the Recognition Requirements while upholding the FSA’s statutory objectives. Similarly, the RCHs that provide post-trade clearing and settlement services are also subject to the Recognition Requirements and relevant provisions in REC. The FSA also supervises several overseas exchanges offering commodity derivative contracts as Recognised Overseas Investment Exchanges (ROIEs). The FSA has to be satisfied that investors are afforded protection equivalent to that which they would be afforded if the body concerned were required to comply with the recognition requirements. Once recognised, the regime is notification based with the FSA relying on ongoing regulation by the ROIE’s home state regulator. The FSA would, however, be able to withdraw ROIE status if the ROIE failed to offer equivalent ongoing investor protection, for example if the ROIE’s markets were disorderly. There is an analogous regime for Recognised Overseas Clearing Houses. Under the umbrella of exchange regulation, the FSA’s risk-based approach has enabled it to apply different levels of regulatory touch to the various recognised bodies, according to the level of risk it judges each exchange to pose to its statutory objectives. Commodity derivative markets have generally been considered lower risk than equity markets, because of the knowledge base of traditional users, and the FSA has regulated these markets accordingly. We discuss at length in this paper how the commodities side is gaining different users and how this could potentially cause the FSA to reconsider their approach.

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Sandeep Vyas

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Capitalvia Global Research Limmited

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