SMX August Debut to Include Energy Contract: CEO
Singapore Mercantile Exchange (SMX) will start trading in August, launching one energy contract out of six initial securities, seeking to create Asian commodity benchmarks that serve the region’s specific trading and hedging needs.
Chief executive Thomas McMahon said on Thursday 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.
The exchange will announce its initial members on June 3 and in the following weeks will reveal the five contracts that will start trading in August together with gold, which SMX last week announced as a debuting contract.
“Market demands, whether its pure consumption, production, shipping, storage, pricing or hedging risk, have definitely shifted to Asia,” McMahon said in an interview for the Reuters Global Energy Summit.
“You have a common sense confluence of finance, trading and clearing in the same region. We see an opportunity to shift the benchmarks or add complementary benchmarks.”
SMX will face competition from other mercantile exchanges in Asia, but its competitive edge will stem from offering hedging tools for a full range of commodities at the continent’s trading hub, serving clients across the region, McMahon said.
Existing commodity exchanges in Asia include the Dubai Mercantile Exchange (DME), which trades mostly energy products, the Hong Kong Mercantile Exchange (HKMEx), which focuses on China and just trades gold, and the Tokyo Commodity Exchange (TOCOM), which is centered around Northeast Asia and is a partner of SMX.
“In terms of global commodities demand, it’s probably well in excess of 50 percent, potentially 60 percent, that is here now,” McMahon said, referring to Asia. “Yet, there is actually very little ability to get proper on-exchange benchmarking.”
The August opening will culminate two years of preparations since SMX was formed in July 2008, as a subsidiary of Financial Technologies (FT). SMX will have its own clearing unit.
“At least one of them (debuting contracts) is energy-related, and it’s only the first of what we see as a multi-product asset class in terms of energy,” McMahon said.
“Our intent is to build out a whole portfolio of energy products that are complementary to the look-alike benchmarking mechanisms, but also the regional mechanisms.”
Singapore Exchange (SGX) (SGXL.SI), Asia’s second-largest bourse operator, launched a fuel oil futures contract in February, which has so far registered limited volumes.
SMX has so far got 11 products certified by the Monetary Authority of Singapore (MAS), said McMahon, who has headed the exchange since April 2009 after directing the Asian business of the New York Mercantile Exchange (NYMEX).
“MAS has created a very fluid and attractive regulatory infrastructure and oversight,” McMahon said.
A U.S. Senate bill has proposed new rules to push as much over-the-counter derivatives trading as possible via central clearinghouses and boost transparency through exchange trading.
“In terms of regulatory framework, there has been a lot of rhetoric from especially the North American side about regulatory arbitrage: if you change our game, you are going to force everybody offshore. This is not the wild west out here,” said McMahon, referring to Singapore’s advanced regulatory framework.
“You have already got good regulators. The MAS is very astute. A large part of the robustness of the Asian financial institutions was really on the back of what they learned more than 10 years ago.”