Wed Aug 10, 2011 2:17am EDT
* SMX futures contract will be second in the world after India
* SMX contract will be cash-settled, small lot size
By Manolo Serapio Jr
SINGAPORE, Aug 10 (Reuters) - The Singapore Mercantile Exchange will launch its iron ore futures contract on Friday, its interim chief executive said, as the bourse taps into a growing market to hedge prices of the steelmaking raw material.
It will be the world's second iron ore futures contract after two exchanges in India launched the first in January. Unlike the Indian contracts, which are denominated in rupees and are limited to domestic players, the SMX contracts will be priced in U.S. dollars and open to global investors.
The contract will be cash-settled against Metal Bulletin's iron ore index .IO62-CNO=MB and will have a size of 100 tonnes per lot, Vaidyalingam Hariharan told Reuters in an email.
That would be smaller than the 500-tonne per lot size of the widely traded iron ore swaps cleared by rival Singapore Exchange .
"Based on the unique contract design of smaller trading unit, optimal tick size and monthly single day expiry, the physical players of all sizes across the supply and value chain of iron ore can participate in the SMX MBIO Index futures contract for effectively covering their price and counterparty risk," Hariharan said.
Products traded on the SMX, owned by India's Financial Technologies , include WTI and Brent crude oil, gold, silver, copper and currencies.
SMX is targeting market participants from China, India, Singapore, Hong Kong, Japan and South Korea for the iron ore futures contract, said Hariharan.
Spot prices of iron ore with 62 percent iron content traded above $177 a tonne on Tuesday, not far off the record $191.70 touched in mid-February, according to Metal Bulletin's iron ore index.
Booming demand from top consumer China and tight global supplies have seen prices more than triple since late 2008.
The industry's shift to a more flexible quarterly pricing system in 2010 from a decades-old annual scheme increased the appeal of hedging tools like swaps.
The volume of iron ore swaps cleared globally rose to an all-time high of more than 4 million tonnes in July, valued at more than $700 million. The bulk of that, or 3.92 million tonnes, was cleared by the Singapore Exchange.
"Unlike the forward swap contract, the futures contract, once matured will facilitate easy entry and exit options to the participants based on higher price transparency and liquidity," Hariharan said.
* SMX futures contract will be second in the world after India
* SMX contract will be cash-settled, small lot size
By Manolo Serapio Jr
SINGAPORE, Aug 10 (Reuters) - The Singapore Mercantile Exchange will launch its iron ore futures contract on Friday, its interim chief executive said, as the bourse taps into a growing market to hedge prices of the steelmaking raw material.
It will be the world's second iron ore futures contract after two exchanges in India launched the first in January. Unlike the Indian contracts, which are denominated in rupees and are limited to domestic players, the SMX contracts will be priced in U.S. dollars and open to global investors.
The contract will be cash-settled against Metal Bulletin's iron ore index .IO62-CNO=MB and will have a size of 100 tonnes per lot, Vaidyalingam Hariharan told Reuters in an email.
That would be smaller than the 500-tonne per lot size of the widely traded iron ore swaps cleared by rival Singapore Exchange .
"Based on the unique contract design of smaller trading unit, optimal tick size and monthly single day expiry, the physical players of all sizes across the supply and value chain of iron ore can participate in the SMX MBIO Index futures contract for effectively covering their price and counterparty risk," Hariharan said.
Products traded on the SMX, owned by India's Financial Technologies , include WTI and Brent crude oil, gold, silver, copper and currencies.
SMX is targeting market participants from China, India, Singapore, Hong Kong, Japan and South Korea for the iron ore futures contract, said Hariharan.
Spot prices of iron ore with 62 percent iron content traded above $177 a tonne on Tuesday, not far off the record $191.70 touched in mid-February, according to Metal Bulletin's iron ore index.
Booming demand from top consumer China and tight global supplies have seen prices more than triple since late 2008.
The industry's shift to a more flexible quarterly pricing system in 2010 from a decades-old annual scheme increased the appeal of hedging tools like swaps.
The volume of iron ore swaps cleared globally rose to an all-time high of more than 4 million tonnes in July, valued at more than $700 million. The bulk of that, or 3.92 million tonnes, was cleared by the Singapore Exchange.
"Unlike the forward swap contract, the futures contract, once matured will facilitate easy entry and exit options to the participants based on higher price transparency and liquidity," Hariharan said.
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