* Up to 70 percent of price moves are "self-generated"
* Commodity markets seen as susceptible to price shocks
By Emma Farge
GENEVA, March 21 Only about a third of commodity
price moves are caused by news, reflecting the growing role of
high-frequency trading in steering prices, according to a study
selected by the International Monetary Fund.
The study, co-written by researchers at the United Nations
Conference on Trade and Development and ETH Zurich, may spur
regulators who blame traders for price volatility.
High frequency trading involves rapid-fire computers which
place thousands of bets within the space of a second.
"At least 60-70 percent of commodity price changes are now
due to self-generated activities rather than novel information,"
according to the 56-page study published this week.
"In our view, this evolution partly reflects the development
of algorithmic trading and of high frequency trading in
The study comes at a key time for the European Union which
is scrutinising a law that puts curbs on high frequency trading.
While high frequency trading is thought to account for more
than half of all U.S. equity trade volumes, its role in energy
and agricultural markets is less well understood.
Some blame the group for a series of mini flash crashes in
commodity prices, such as a $13 intraday plunge on oil prices in
May 2011 and a sudden dive in Brent prices last September.
Supporters of high frequency trading say they bring
much-needed liquidity to futures markets, helping to match
buyers with sellers.
"Commodity markets are becoming very financialised and
computerised. They are becoming more susceptible to minor
shocks," one of the authors Vladimir Filimonov told Reuters.
The paper studied data on oil, corn, soybean, sugar and
wheat prices between the mid-2000s and October 2012.
It was selected as part of an IMF forum 'Understanding
International Commodity Price Fluctuations' organised with
Oxford University. For a link, see here:here
(Additional reporting by Huw Jones in London; editing by Ron