DCP Oracle arbitrages commodity prices between China and the West
Tue Jun 22, 2010
Greg Davidson, one of the pioneers of Sino-western commodities price arbitrage, elucidates his unique strategy of working within the regulatory barriers in China to glean uncorrelated returns
Trading global commodities at US physical
commodity merchant Gerald Metals in the late 1990s, it became
obvious to Greg Davidson that the rapidly growing China
commodities market presented a natural arbitrage in terms of
price differentials with the Western markets. This was
primarily due to the closed nature of the China market which
resulted in market inefficiencies, and the several regulatory
barriers to arbitrageurs in the marketplace - after all,
China's commodity markets were closed and the renminbi was a
controlled currency. This made China the only market to offer
unparalleled arbitrage opportunities between the commodity
prices there and other western markets such as London and New
"We realised that if we had the right structure in place
that could help us access these various regional markets under
the existing rules, and extract arbitrage opportunities between
commodity prices in these markets, we could generate true,
non-directional alpha," explains Davidson. With...
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