Commodity derivatives: Financialization and Regulatory Reform

Commodity derivatives have been traded for well over a century, often attracting calls for stricter regulation during periods of rapid commodity price inflation or deflation. The 2000s, when a sharp spike in prices coincided with a major increase in participation in derivatives markets by finacial investors or speculators, were no exception. Against this background the financial crash of 2008, this led to inclusion of commodity derivative markets within the broader framework of post-crash US and EU financial sector re-regulation.

This Working Paper, by DIIS Senior researcher Peter Gibbon, reviews and elucidates these events and their inter-connections as well as the reforms themselves. Subsequently, it presents new data on post-crash market financialization as well as tracing the emergence of a new regulatory directions focusing on actors in physical commodity markets. The paper has been produced as part of a wider DIIS-based research programme on the Political Economy of Financial Regulation, directed by Jakob Vestergaard.