2013 was a year of significant turbulence and uncertainty. While Stricter Regulations pushed some investment banks to close down their commodity trading divisions (see JP Morgan, Deutsche Bank), excessive Volatility and poor returns saw some commodity hedge funds closing down. The 16 day US shut-down added significant woes to logistics and operations divisions of all commodity players and played havoc with quarterly and annual budgets and sales projections. Price volatility for most commodities got worse, from corn and soybeans to Currencies and Gold, although Energy did see a slight dip in volatility.
While expectations are that some bigger Commodity players will pitch in to a certain extent and fill the void left behind by these exits, industry in general is quite concerned about the impact of these regulations on them. Many feel that this impact will increase liquidity risk significantly and also affect basis risk to a great extent. And it sure does seem very plausible.
2014 promises to be no less turbulent. But it is also full of opportunities – to grow your topline, put better processes in place, improve your bottomline. But it cannot be done without significantly revamping the Enterprise Risk Management Function. Better people, better processes and better technology. And more importantly, integrating Risk Management across divisions and enabling it to play a strategic role in the organization.
For those who are already on this, Wish you a Happy & Risk-enabled 2014 ! For all others, Wish you Good-luck !
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