The Singapore Exchange (SGX) has reported a trading volume for commodities derivatives of 1.2 million contracts in January, up 15% month-on-month and up 110% year-on-year. "SGX continues to register strong growth across its commodities portfolio, which has been built to reflect, and support, Singapore's role as a trading hub for seaborne commodities," said Janice Kan (pictured), head of derivatives market development & strategy at SGX. "Increasing price volatility and uncertainty across the global commodities market has certainly impacted the requirements for both price discovery and risk management tools," she said.
One of the drivers behind the increase is the market for iron ore derivatives, which now clears over 90% of the world's seaborne iron ore derivatives, according to Kan. "This now matches the size of the total underlying market at around 1.1 billion metric tonnes and volumes continue to grow."
During the second quarter of SGX's current financial year (October - December 2015) iron ore volumes increased 121% to 2.6 million contracts, and during January they increased 13% m-o-m and 113% y-o-y. "We are now replicating [...] iron ore derivatives to new markets where there is a need for risk management tools and price discovery, including LNG (liquefied natural gas)," said Kan. SGX recently launched SLInG, a spot index created to become a trusted price market for Asian LNG, and subsequently swaps and futures on this to provide much needed risk management tools in light of changing demand and supply dynamics and subsequent price uncertainty, Kan explained.
Sicom Rubber Futures volume, the world's price benchmark for physical rubber, at 72,125 contracts, was up 39% compared to the previous month and up 52% from the previous year year, the statistics for January show. "Rubber prices are currently at a seven year low, and this price movement has resulted in greater risk management needs for rubber market participants, including producers and traders," said Kan. "In 2015, Sicom rubber futures traded a total of 3.27 million metric tonnes, 34% higher than in the previous year, while combined open interest averaged 163,000 metric tonnes, 23% more than that in 2014."
Total derivatives volumes are also up, as there are increases in equities, currencies and rates, with the volume for equity index futures, at 15.4 million contracts, up 26% m-o-m and up 17% y-o-y, while forex related derivatives registered 125% increases on yearly basis, according to the report. "The on-going volatility in China's markets has effected risk management considerations in the region, feeding through to volumes of our China-linked contracts," said Kan. "These include the USD/CNH futures contract, of which over US$32bn has been cleared since launch, and our China A50 contract, which hit a monthly record of 14 million contracts in July last year and remains the most active contract."
Kan said the SGX also sees a fast growth within its India-linked products. "We now see over US$750 million in notional value traded per day in our INR/USD contract, and the SGX Nifty 50 Index futures trading volume grew 20% during our 2015 financial year. The January volatility has also affected the Japan market leading to 3.55 million Nikkei contracts traded on SGX, which is the highest seen in the last 6 months," Kan said.
Total securities market turnover value increased by 36% compared to December and fell 8% from last year to SGD23.2 billion, during 20 trading days compared to 22 trading days in December and 21 trading days in January 2015. "A pick up in market volatility saw broad increases in participation across all segments of investors. In particular, significant increases in index constituent stocks of the Straits Times Index that account for more than 70% of the turnover," said Nico Torchetti, head of trading and post trade market services at SGX. "This in part results from improved efficiency following reduction of board lot sizes last year, allowing for more efficient execution and hedging for traders and risk management of derivative and other structured products."
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