IOSCO issued a report on the impact of storage and delivery infrastructure on the market pricing for commodity derivatives. The report is composed of six parts: (i) an introductory discussion of the importance of the physical delivery infrastructure to the financial markets, (ii) an overview of regulatory issues, including whether a regulator has the authority to regulate derivatives exchanges as well as clearinghouses that also serve as warehouses, (iii) an overview of operational issues, such as physical storage procedures, and storage and loading costs, (iv) a discussion of governance and conflicts of interest, e.g., whether persons who control a warehouse also are participants in the derivatives markets, (v) access to information and (vi) conclusions. The report concludes with recommendations for the development of industry best practices in order to avoid a breakdown in storage infrastructure or disruptions in the marketplace.
Lofchie Comment: Over the past several years, it has been asserted that derivatives prices in the aluminum market were manipulated by the warehouses, but the CFTC seems to have found no evidence to support those accusations. See Senate Agriculture Committee’s Stabenow Calls on “CTFC” to Review Alleged Manipulation of Aluminum Market (with Lofchie Comment); IOSCO to Survey Effects of Storage Warehouses on Price Formation in Commodity Derivatives Markets (with link to Streetwise Professor).