SGX clears 9,700 tonnes of iron ore futures on first day of screen trading

The Singapore Exchange (SGX) cleared 9,700 tonnes of iron ore futures on Monday September 2, the first day it introduced the electronic trading system for the contract.

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The futures contract was launched in April but had – until Monday – been traded only on a bilateral basis.

The contract has not been very liquid. By the end of August, a total of 227,000 tonnes were cleared on the SGX. In August itself, no iron ore futures contract was cleared on the exchange.

Iron ore swaps, on the other hand, saw more than 3 million tonnes being cleared in the first five months after its launch in April 2009, according to SGX data.

The exchange introduced electronic trading for the iron ore futures contract “in reaction to market participants who want to do screen futures”, Lily Chia, vp of product management for derivatives at SGX, told Steel First.

“Our strategy is always to allow participants to trade the products in whichever form they like, whether it’s swaps or futures.

“But this is really aimed at much smaller players, because the size of our futures contract is one fifth that of the swaps, so it’s aimed at new participants and smaller players,” she added.

The futures contract has a lot size of 100 tonnes whereas those for swaps and options have a lot size of 500 tonnes.

Chia said it’s “highly unlikely” that the screen trading would kill the derivatives broker community.

“We think [brokers] still play a very important role in the market. In fact, we still work very closely with them. We’re always in close contact with them,” she said.

Chia declined to comment on whether the exchange is giving incentives to traders to put up their offers and bids electronically.

The iron ore futures and swaps contracts on the SGX are fungible – a position in one contract is offset-able by an opposite position in the other.

Iron ore swaps and options are still being traded over the counter.

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