Regulatory uncertainty over commodity units


Bank ownership of commodity operations has generated lots of controversy recently. When the heat intensified, JPMorgan Chase wasted no time in announcing it would sell its physical commodity ownership business, to the surprise of no one. Goldman Sachs has not followed suit with regard to its Metro warehousing unit, but surely the issue has come up internally.

As for trading operations, the Federal Reserve has come under fire for a lack of bright lines in this area. However, it "may not unveil its plans for regulating Wall Street's commodity trading business until early next year," reports Reuters.  

"The timing confounds any expectations that the regulator would make its views known before a second Senate hearing expected next month into the rigging of aluminum and other markets, at which Fed officials are due to testify."

Recall that the Fed has been forced to take another look at a "decade-old decision that has allowed Citigroup, Barclays and other banks to engage in the trading of physical commodities such as oil and metals, as well as its wider policy on containing the risks from the commodity business for banks. It has never publicly set a time frame or deadline for the review."

There may be little it can do. Banning commodities trading certainly would be a non-starter. The debate about the value of active Wall Street trading on the well-being of actual users of the commodities rages. Regulators other than the Fed are taking a close look.

It will be interesting to see if we get some juicy media reports just ahead of the hearings. Committees often leak information to drum up interest in the actual hearings.

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