SGX to launch clearing services for coking coal, steel swaps, iron ore options

The Singapore Exchange (SGX) – the most popular clearing venue for the iron ore swaps market – is set to launch iron ore options, coking coal swaps and steel swaps in the next 12 months.

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The Singapore Exchange (SGX) – the most popular clearing venue for the iron ore swaps market – is set to launch iron ore options, coking coal swaps and steel swaps in the next 12 months.

The bourse’s business development and marketing manager, Kenneth Ng, told industry representatives at a brokers’ event in London last week, that the specifications of the coking coal contract and which index price will be used have not yet been decided, but he expected either the Platts or the Argus index to be chosen.

The SGX will launch its coking coal swaps contract by the middle of 2012, Ng said, adding that the contract will help SGX maintain its position as the foremost clearing venue for ferrous derivatives.

The SGX started clearing iron ore swaps in April 2009 following the launch of the contract by Deutsche Bank and Credit Suisse the previous year. It cleared more than 7 million tonnes of iron ore swaps in October 2011, the contract’s busiest ever month.

The number of ferrous derivative contracts available to market participants including miners, mills and investors has multiplied in the past year,

The Chicago Mercantile Exchange (CME) Group launched the first cleared coking coal swaps contract in August 2011, clearing more than 100,000 tonnes of coking coal swaps by the end of the year.

Brokerage firm Freight Investor Services (FIS) concluded the first brokered coking coal swaps trade on September 11, 2011.

CME Group also clears iron ore options and steel swaps, including North American hot rolled coil swaps.

The Singapore Mercantile Exchange launched a cash-settled iron ore futures contract in August 2011, adding ferrous products to its established range of gold and currency products.

Some market participants have argued that ferrous derivative liquidity needs to be concentrated on fewer contracts.

Speaking at the same brokers’ event, Citi iron ore swaps trader Habib Esfahanian said increased base risk was less of a worry to market participants than a glut of contracts diluting liquidity.

Michelle Madsen

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