Baltic Exchange ship futures platform examines move into commodities

Monday, 6 July 2015 00:00 -     - {{hitsCtrl.values.hits}}

  • Baltex reaches breakeven level since start of 2015
  • Baltic previously faced broker opposition over platform


London (Reuters): London’s Baltic Exchange is studying a potential foray into commodities and is open to proposals on tie-ups as other exchanges attempt to boost volumes, its chief executive said.

Baltex, the Baltic’s digital shipping platform, was launched in 2011 as the first central electronic marketplace for freight forward agreements (FFAs), which allow investors to take positions on freight rates at a point in the future.

Since the beginning of this year, the previously loss making platform, has reached breakeven levels after Baltex became a venue for presenting block futures at the start of December.

“We have looked at whether we can futurise some of the adjacent contracts - some of the contracts that fit well and which are traded broadly by the same people,” Baltic CEO Jeremy Penn told Reuters.

“Things like iron ore and some of the coal contracts ... and to the extent that we could provide something useful in that area, then we would,” Penn said, adding there was no timeframe.

Transforming OTC (over-the-counter) derivatives into futures via a clearing house is known as futurisation.

The privately held Baltic Exchange and LCH.Clearnet, majority owned by the London Stock Exchange, reached an agreement last year allowing FFA trades to be cleared and reported via Baltex, designed to increase transparency in a period of tougher global market regulatory scrutiny.

Baltex, run by a Baltic-owned unit, had previously come under fire from brokers who preferred to trade FFAs by phone or on their screens to maximise commission.

Sources told Reuters in July 2013 that the Baltic, the hub of the global shipping market since it was founded in 1744, had received expressions of interest in Baltex from exchanges and financial operators including the London Metal Exchange (LME), CME Group and LCH.Clearnet.

“We have always had a door, which is open to hear proposals from third parties. We have always been keen to see the FFA market develop,” Penn said.

“On the other hand, the current structure and process seems to have served the market very well for an extended period of time. It is not obvious what wonderful new things can be provided. But, we would not rule anything out.”

Hong Kong Exchanges and Clearing bought the LME for $ 2.2 billion in 2012. To justify that price the LME is acting to boost revenue.

Penn said: “It is no secret the LME have often felt that it (FFA market) was very much adjacent to their business.”

“Anybody can come along and say I am going to develop an FFA product,” he added. “And if they want to use the Baltic settlement mechanism, then they are going to have to come with a proposition which is of interest to the Baltic members and the Baltic market.”

The LME declined to comment when contacted.