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Tougher Energy Trading Rules See Canadian Banks Step Up

The feds invoked tougher trading regulations earlier this month, leading analysts to predict that Wall Street would lose its advantage over commodity hedging to the benefit of the oil and gas majors, and now Reuters is reporting that Canadian banks are stepping up their deal-making.

Major Canadian banks who have long focused on energy trading, hedging and deal-making are stepping up to the plate across the Americas, picking up market share, according to the report.

Executives from the Bank of Montreal (BMO-T), Canadian Imperial Bank of Commerce (CM-T) and Bank of Nova Scotia (BNS-T) told Reuters they were expanding operations in Canada, the US and even South America.

"We have been able to pick up market share not only in our home market but able to rapidly grow our business in the U.S. and overseas in places like the North Sea," Adam Waterous, a veteran oil banker who heads Scotiabank's global investment banking team, told Reuters.

The tougher trading regulations, known as the Volcker Rule, were finalized on 10 December by banking and securities regulatory agencies, and will prohibit proprietary trading by banks with the end goal of drawing a line in the sand between commercial banking and investment banking.  

The Volcker Rule, implemented in the wake of the financial crisis and named after former Federal Reserve Chairman Paul Volcker, is being viewed by some as a major coup in commodities trading for non-banks, including oil majors and commodity trading houses.

While banks such as Deutsche Bank and JP Morgan had been downsizing their commodities in anticipation of the tougher rules, the three Canadian banks saw their commodity trading revenues rise 30% in 2012.

Scotiabank, the largest trader of commodities, reported a 26% jump in commodity trading revenues, up to USD$397 million last year, according to Reuters. Royal Bank of Canada saw its trading revenues jump 11% for the same time period.

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Though the Canadian banks do not appear to be eyeing physical crude oil trading, like JP Morgan, they are planning on beefing up investments in industry logistics and storage.

By. James Burgess of Oilprice.com



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