Singapore Exchange Limited (SGX) launches the worlds first clearing of over-the-counter (OTC) Iron Ore Swap contracts on Monday, 27 April 2009.
The Exchange has signed an agreement with The Steel Index that will provide its reference price for the settlement of the Iron Ore Swap contract to be cleared via SGX AsiaClear.
Risk management tools such as iron ore swaps are important in managing volatility in iron ore prices. The size of each Iron Ore Swap contract is 500 metric tons. It will be cash-settled based on the average of The Steel Index (TSI) iron ore reference prices in the expiring month.
OTC iron ore swaps have become an important instrument to industry participants. AsiaClear can now meet the risk management needs of these participants, says Elena Sng, senior vice president, AsiaClear and Clearing and Commodities Business, SGX. This is a natural extension of our OTC product suite including Forward Freight Agreements and Energy contracts.
We are proud to partner the Singapore Exchange by providing our iron ore index for its iron ore swap settlement, says Steven Randall, managing director of The Steel Index. I am confident that with SGX’s capabilities in OTC clearing, this product will further enhance the iron ore derivatives trading and risk management activities in Asia.
The timing of a cleared swap contract is excellent given the shift from annual pricing to spot pricing. Combining this with a freight derivative contract, SGXs Iron Ore Swap clearing has great potential. As one of the key drivers in the development of the iron ore swap market, we are pleased to be one of the providers of the daily forward curve to SGX, says John Banaszkiewicz, managing director of Freight Investor Services.
“As an active market participant in the OTC iron ore swap trading, we recognise the credit issues in the global financial markets. The launch of the SGX Iron Ore Swap clearing will increase market participation and facilitate the growth of an active iron ore swap market, says Raymond Key, global head of Metals Trading, Deutsche Bank.
L.D.