Commodities are generally various products like corn, gold, crude oil and cocoa etc. The most important thing is that, there are interchangeable and can be easily brought or sold on international market with the same condition. They don’t need to be processed while selling to different traders but one condition is applicable here that these products are tradable with the same way as financial features and only one different that physical settlement and the quality is always to be taken into through consideration like financial features.
Generally, there are a common contract between buyers and sellers of those commodities which always indicate the amount of commodity, its quality and the location where it is going to be delivered. Each future contract has common size which has been set by the exchange trades. Each and every contract is featured with fix delivery month, date of delivery etc. The commodity buyers never breach the delivery date as it is the most vital point of this cycle and the contract get expired automatically after expiry month which was mentioned before.
Now the question is that, how different regulations have direct or sometimes indirect influence on various trading companies?
The regulations mainly impact on various financial intuitions and baring them to provide balances sheet loans even it includes trade financial facilities thereafter they unable to provide financial assistance for the traders.
In some countries, heighten the regulations those are covering OTC derivatives with the aim of maintaining transparency by rolling out the organized trade facilities, central clearing, central margin and finally central margin those are a few names to overcome from such regulations.
With this high competition era, latest different types of regulation have increased no matter whether there is such regulations are impact on commodity trading directly or indirectly. It is true that the pressure if different regulation will impact on wave of regulations. In such condition, banks need to consider the clients they should continue the business which shouldn’t be operated not only from a balance sheet, specific market or credit and perspective of these operational risk has increased. It influences the reputation, conduct, legal or compliance risks properly and proved as harder to capture given their qualitative nature. There shouldn’t be wait and watch procedure applied. Commodity trading companies are always survive these issues and bound by different laws which sometimes create better market place or sometimes tough to pass them. If you want to know about trade finance systems just browse internet.
Rusca Dimitri works in for a trade finance company for more than 20 years. He has good management skills and during his free time he writes short articles on Trade Finance Systems and Commodity Trading Companies.
By NikolayFrolochkin from Pixabay