Singapore’s SMX to Focus on Deliverable Contracts to Gain Market
The Singapore Mercantile Exchange (SMX) on Thursday said it aims to gain market share by offering commodity contracts with the option of physical delivery in Asia, as opposed to just financial settlement.
SMX’s first contract with that option will be for gold, which will be launched together with two financially-settled contracts — crude oil and one euro-dollar currency futures — for the exchange’s debut on Aug. 31.
“There is an opportunity to transfer the benchmark price to Asia, and that is what we are going to do,” SMX Chief Executive Thomas McMahon told reporters in Singapore.
SMX will have the opportunity to build a bullion storage facility in Singapore. Still, some traders were sceptical that this would help attract liquidity because of the growing popularity of exchange-traded funds (ETFs).
“I don’t think it will be really successful,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. “There are already too many products around,” including ETFs, he said.
The world’s largest gold-backed ETF, SPDR Gold Trust (GLD.P: Quote), on Thursday said its holdings rose to 1,295.516 tonnes by Aug. 18 from 1,294.604 tonnes on Aug. 17. The holdings hit a record of 1,320.436 tonnes on June 29. [GOL/SPDR]
Having a deliverable contract in Asia-Pacific for crude oil will be more challenging, as production of specific grades is not large enough to constitute an independent regional benchmark.
A basket of crude grades could eventually become a marker, McMahon said, but the presence of multiple varieties would prevent it from being physically deliverable at a specific point.
The exchange now has five confirmed members for trading of energy products, including European trading firm Vitol, and is in talks with three more, McMahon said.
SMX has identified 34 products that could eventually trade on the exchange. McMahon signalled copper and palm oil may be among the first ones to be introduced after the four, which include West Texas Intermediate crude and euro-denominated Brent.
SMX aims to capture between 3 and 5 percent of Asia’s total derivatives market in terms of volume, including energy, metals, agriculture, currencies and commodity indices, McMahon had said in May.