The agricultural commodities sector has been the subject of controversial discussions for some time now. Deutsche Bank set up a working group to analyze the role financial investors play on the commodity futures markets already in 2011. In March of last year, the Bank decided to temporarily halt the launch of new staples-based exchange-traded products.
After evaluating numerous studies on the matter, the working group established that there is little empirical evidence to support the notion that the growth of agricultural-based financial products has caused price increases or volatility. At the same time, it confirmed that agricultural commodity-based futures markets offer substantial benefits to farmers and processors.
Thus, Deutsche Bank's Management Board decided to continue to offer financial instruments based on agricultural staples. The following Q&As provide more details on this decision as well as a summary of the working group's findings.
- The G20 has articulated a five-point Action Plan on Food Price Volatility and Agriculture which aims to address many of the structural deficiencies in the sector. It also promotes appropriate regulatory reform to limit market abuse and increase transparency. We firmly support these proposals.
- Functioning markets require a solid regulatory framework. This is as true for derivative markets as for any other. Greater transparency will ensure market integrity.
- We do have concerns, however, about proposals to introduce position limits in the European Union under the Markets in Financial Instruments Directive (MiFID). Such measures would restrict a bank's ability to execute customized trades tailored to the needs of its clients.
- In the US, rules on position limits introduced by the Commodity Futures Trading Commission (CFTC) have been vacated by the court because the CFTC did not provide evidence that these rules are necessary for limiting "excessive speculation". The CFTC has appealed the decision.
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