CONDUCT: COMMODITY TRADING FIRMS AND SYSTEMIC RISK In 2014, Trafigura commissioned Professor Craig Pirrong, Professor of Finance at the Bauer College of Business at the University of Houston to write a white paper entitled “The Economics of Commodity Trading Firms”. The paper sought to address concerns of some regulators that some commodity trading firms were ‘too big to fail’, and therefore posed a threat to the stability of the global financial system, which would necessitate subjecting them to additional regulation, akin to that imposed on banks. The paper concluded by noting that while such firms do provide intermediation services, and engage in a variety of transformations, these services and functions are fundamentally different than those undertaken by financial institutions that have been the sources of systemic risk in the past. As such, there is no basis to subject them to a regulatory regime designed to mitigate the systemic risks posed by financial institutions that perform very different economic functions and which have very different balance sheets. In 2015, Trafigura produced a further paper “Not too big to fail” exploring the concept of systemic risk, regulation and the economics of commodity trading firms in greater detail. In conclusion, the report stated: “There is little justification for subjecting commodity trading firms to CRD IV [The Capital Requirements Regulation and Directive, an EU legislative package covering prudential rules for banks, building societies and investment firms]. This would produce no material reduction in systemic risk, but would increase the costs of commodity trading, to the detriment not just of trading firms, but of the producers and consumers of commodities.” With representation from Finance, Corporate Affairs and Compliance departments, Trafigura directly engaged, for example, the European Banking Authority and also the Bank of England on this topic throughout 2015 and 2016. Engagement is likely to continue into 2017 and we will report on progress going forward.