November 2010 - sponsored by: Commodity Research Bureau (CRB), GFI, Platts, SuperDerivatives.
The Wind of Change... Is Also Data
The commodities markets are in a state of flux. But unlike the changes that have impacted many other asset classes over the past couple of years, commodities are booming, producing a surge in demand for market data on everything from oil and coal to base and precious metals, and crops and livestock, and attracting interest from not just the major commodities trading firms and brokerages, but other speculative traders, hedgers managing risk against related instruments, and even mainstream investors via commodity funds and exchange-traded funds.
But in addition to the usual types of market data required for trading other asset classes-quotes, trades, terms and conditions, maturities, historical information, research, fundamental data, and charting and analytics-commodities also have a range of additional information that must be collected, ranging from crop growth, Department of Agriculture reports, supply and demand data, metrics on the output of individual mines, and weather. And while price data is broadly available from vendors and brokers, more specialized data is frequently the preserve of niche suppliers.
Not only must this data be consolidated together to be useful; it must also be consolidated with other, related information to meet the demands of cross-asset trading strategies as firms arbitrage commodities against each other, or even against other asset classes-trading physical coal or oil against stock in mining or petrochemical companies, for example.
And as these data demands grow, firms will be forced to deal with the same issues that have already been addressed in other asset classes, such as the need for robust data infrastructures that consolidate fragmented sources of increasing volumes of data, and the efficiency arguments of utilizing real-time datafeeds in the back-office as well as on trading desks, to reduce the risk of error from manual processing.
Meanwhile, the Commodity Futures Trading Commission is deciding on setting limits around the level of positions traders can hold in energy and metals futures. Not only does this leave traders uncertain of whether their holdings are compliant or not with the upcoming rules, but also places a burden on the CFTC to collect its own data for the purposes of real-time monitoring of industry positions.
If commodities weren't complicated enough, they're about to reach the next level, and traders and data providers will all need to respond.