Set up in 2010, the
Singapore Mercantile Exchange (SMX), a pan-Asian commodity and currency
derivatives exchange, is now hunting for more agricultural commodities from
black pepper in Vietnam to rubber in Thailand, to become the regional centre
for agriculture futures transactions.
SMX last month signed a memorandum of understanding
with the Agricultural Futures Exchange of Thailand to include rubber futures in
its trading platform, following similar deals with Vietnam and Indonesia, which
are famous for their black pepper and palm oil.
"Under the MoU, we collaborate on the broad-based
agreement to make contracts global," CEO V Hariharan said during an
interview in Bangkok. "We hope to launch more such Asia-centric contracts
adding to the list of products being offered by SMX that can be established as
Asian benchmarks for prices of commodities being predominantly consumed and/or
produced in Asia.
"You should be the price-setter, not let it be
set by someone else. You should be the price-setter for the commodities."
While Argentina is the major global supplier of
soybeans, the soybean price is set at the Chicago Mercantile Exchange, the
world's largest. Likewise, while Thailand is the world's largest supplier of
rubber, but the price is also set in Chicago.
New contracts will boost the range of products
provided by SMX, and through SMX, which is one of the 58 members of the World
Federation of Exchanges, farm products from those countries can be tradable to
investors across the world from the United States to Japan. This would free the
products from price cycles, when prices fall at the end of the harvest season
and rise when there is no new output.
More agricultural commodities mean more farmers would
be guaranteed of demand and know about the future prices of their crops. Corn,
rice, wheat and cotton dominate the market.
Commodity futures are being used by traders as a
hedging tool, with less than 5 per cent of commodities physically delivered.
Black pepper futures, with black pepper from Vietnam
as the underlying asset, became tradable in Singapore in February 2012. It was
dubbed as the world's first black pepper futures and is the first commodity
futures on the Singapore-based exchange, which is keener on currency
derivatives. Farm commodity trading is still sluggish due to the higher prices
of other commodities like gold and oil. However, the volume will grow. Black
pepper futures and E-gold futures based on Indian gold prices helped SMX
achieve turnover of over US$71 billion in 2012.
With over four million contracts traded on the
exchange since its launch in August 2010, the end of 2012 saw cumulative
turnover of over $134 billion since SMX went live. During 2012, the average
daily volume was over 8,200 contracts, with the peak at 30,075 contracts.
Despite the low volume of farm futures, "it's a
good financing mechanism for farmers and it's good for the economy",
Hariharan said.
More products will make SMX the true regional hub for
derivatives, putting it on par with global exchanges that are competing for
trade via niche products. Thailand Futures Exchange offers gold futures, but
they are traded in Thai baht not in US dollars as at SMX. In Hong Kong, the
exchange is famous for gold and yuan, but farm products are not Hong Kong's
focus.
"We can work together to find the products that
benefit both exchanges," he said, referring to the collaboration with
Thailand's exchange.
Besides rubber, there's a possibility of including
ethanol, sugar and tapioca from Thailand, he added. The products will then
reach global investors, allowing the Asian exchange to set prices for
commodities cultivated in the region.
Achara Deboonme
The Nation
Business & Investment Opportunities
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