Friday April 13, 2012

Singapore’s SMX to launch new contracts

It aims to roll out gold and silver futures next month

SINGAPORE: The Singapore Mercantile Exchange (SMX) will roll out new gold and silver futures contracts next month and is also looking at rubber and sugar contracts, its chief executive said, as the fledgling bourse moves further to boost liquidity.

SMX, owned by India's Financial Technologies, is hoping to capitalise on the brisk trading interest in gold and silver futures contracts traded in India, the world's biggest gold consumer, and give potential players the opportunity to hedge via the new contracts.

SMX chief executive Vaidyalingam Hariharan told Reuters the dollar-denominated E-Gold and E-Silver contracts, to be launched on May 8, would be cash-settled against the benchmark gold and silver futures contracts in India, run by its sister company, Multi Commodity Exchange.

“We are providing an alternate market because China and India are closed markets,” Hariharan said in an interview. “People generally import gold in US dollars so it makes sense for them to hedge their risk in the same currency.”

The Shanghai Futures Exchange, China's biggest metals bourse, is looking at launching silver futures this year, part of the city's ambitions to become an international financial centre by 2020.

Established in August 2010, SMX said trading volumes on all its contracts surged to more than 800,000 lots in the first quarter of the year, valued at nearly US$30bil, from around 37,000 lots in the corresponding period in 2011.

Compared with established bourses, volumes on SMX remain modest. Volume traded on the London Metal Exchange, the world's top market for industrial metals, hit a record 146.6 million lots in 2011, valued at US$15.4 trillion.

SMX currently offers 13 contracts, including gold and silver based on New York prices. Other futures contracts include iron ore, oil, copper, currencies and black pepper.

But the surge in SMX's trading volumes has been accompanied by thin open interest, prompting some industry players to cast doubt on whether investors in the bourse were using the contracts to hedge or if the interest is mostly from retail players.

But, as with anything that is new, Hariharan said it took time for a bourse to gain the confidence of the investing community.

“As far as a new exchange is concerned everyday is a milestone. But definitely the growth direction is there,” he said.

Hariharan said SMX was also looking at launching rubber and sugar futures contracts within the year, with rubber possibly next month if the bourse secured the necessary regulatory approvals. That will add to the exchange's agricultural basket following the launch of its black pepper contract in February.

SMX is also broadening its trade membership base as it aims to boost liquidity in its contracts further.

Hariharan said he was hopeful the launch of more contracts would pay off. - Reuters

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