Commodity Trading Gets Physical
Dodd-Frank and the actions of regulators are turning banks away from the US energy derivatives market. Since the start of 2011, Tricumen’s Energy Client Flow Index (CFIndex) has fallen by 20% …
… while the volume of metals traded has grown at a compound annual growth rate of 17%.
The combined effect has been switch away from financial and into physical trading: physical assets at banks have grown by around 55% while commodity derivatives have fallen by 45%
We expect that banks adopting this strategy could improve product RoAEs by 3-6%