Baltic ship futures screen carries out 1st trades

By Jonathan Saul

LONDON, June 8 (Reuters) – A new Baltic Exchange platform for centralised electronic trading of dry freight derivatives carried out its first trades on Wednesday and signed up users including Cargill and Morgan Stanley, the exchange said.

Freight forward agreements (FFAs), which allow a buyer to take a position on freight rates at a point in the future, had not previously traded on a central marketplace.

“I am delighted that some of the market’s biggest traders are ready to trade from day one; they will be joined by others currently finalising their paperwork,” Baltic Exchange chairman Mark Jackson said in a statement.

“The shipping, financial and commodity sectors now have a centralised, transparent and regulated marketplace in which dry freight derivatives can be traded. We expect Baltex to attract new companies in the coming months and support greater liquidity in the FFA market.”

The platform called Baltex, which provides live FFA prices and is run by Baltic Exchange Derivatives Trading Ltd, a Baltic subsidiary, has been authorised by the Swiss financial authority FINMA and the UK’s Financial Services Authority.

Principals signed up and ready to trade include AM Nomikos, Cargill, CTM, Morgan Stanley, M2M, Pacific Basin and Toepfer, the Baltic Exchange said.

Eight trades were executed in the first few hours of trading on Wednesday, it said.

The introduction of central electronic trading in this niche market has been held up as FFA brokers, fearing a loss of commission business, have objected to a UK regulatory requirement that would take away fees that brokers had received in every trade.

 

NEW MEMBERS

Alex Gray, chief executive of Clarkson Securities Ltd, one of the biggest FFA brokers, said it had joined Baltex.

“Some of our customers are using it,” he told Reuters. “We have always said that we will go where our customers want to go as a broker.”

An FFA market source said SSY Futures, also among the biggest FFA brokers, had joined Baltex, although SSY would not confirm this when contacted.

“Activity on the launch date is encouraging, and people will be watching closely to see how it develops,” the source said.

The FFA market, which began in 1985, grew to an estimated value of $130-$150 billion in 2008 before the financial crisis. The value of dry transactions fell to around $27 billion last year, and a lower value is expected this year in a weaker market.

Baltex can be used by both brokers and principals. All live prices can be seen by Baltex screen members, but the trader’s identity is kept anonymous to all except the nominated broker.

Baltex supports straight-through processing to Europe’s largest independent clearing house, LCH.Clearnet, as well as Norway’s NOS, the Baltic said.

Singapore Exchange (SGX) and CME Group Inc are expected to be added shortly as clearing houses, it said.

A transaction’s clearing status is displayed in real time.