Nasdaq plans China commodity futures trading in Singapore

Nasdaq is planning to give investors direct exposure to China’s freight, iron ore and crude oil markets, through offshore futures contracts traded in Singapore – joining other exchanges in a wider push into Asian derivatives trading.

Hanne Johansson, Nasdaq’s global head of commodity sales, said the exchange believes new products can help satisfy demand for offshore access to Chinese markets, in much the same way as offshore renminbi trading in Hong Kong and London does.

“We want to explore how we can actually bridge these two markets,” Mrs Johansson said, referring to mainland China and offshore derivatives trading venues.

Physical presence

News of the initiative comes as a number of foreign exchanges, including Nasdaq, Intercontinental Exchange and Deutsche Börse, have moved to establish a physical presence in Singapore to extend their reach in Asia.

Singapore is one of the world's busiest ports and a hub for physical commodities trading. Commodities trading houses Louis Dreyfus, Klaveness and Cargill all have freight derivatives trading operations in the city-state.

But Singapore has lagged behind on freight derivatives trading, even as Asia plays an increasingly prominent role in the shipping market, with China becoming the biggest importer of seaborne commodities such as iron ore. One reason for Singapore’s relatively limited role is that existing derivatives contracts rely on indices set by London’s Baltic Exchange – some of which are calculated late in the day for Asia.

“If you ask how much trading is done in Singapore before London opens, it’s about 10 per cent [of global trading in freight derivatives],” Mrs Johansson said.

“It’s still a long way to go to get the trading activity [in freight derivatives] up in this region to mirror the physical trading activity – there’s still huge potential.”

The Nasdaq executive welcomed SGX’s move to acquire the Baltic, a deal which is expected to complete in November. The acquisition will give the Baltic a stronger presence in Asia, with SGX creating futures based on Baltic indices.

She said: “I would say [the Baltic deal] helps. We will both work to increase the liquidity.”

Licence

Nasdaq received a licence from Singapore’s regulator in August allowing them to be present in Singapore to promote freight contracts listed in Oslo.

Intercontinental Exchange launched a Singapore clearing house last November and Deutsche Börse is planning to open a derivatives arm in the city-state next year.

Derivatives have been a growth area for SGX at a time when equities listings are in the doldrums.

However, previous attempts by exchanges to launch new contracts for tapping in to the Asian commodities boom have struggled, as investors have preferred to stick with familiar products. – (Copyright The Financial Times Limited 2016)