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The Indian-owned Singapore Mercantile Exchange expects to capture a 3-5 per cent share of the 6.8bn commodities and derivatives contracts traded annually in Asia, its chief executive said.
The SMX, set up at a cost of S$75m (US$55m) by India’s Financial Technologies group, will announce on Tuesday that it would start trading on August 31 with four products and at least four more ready to be introduced over the next six months.
The launch reflects growing competition in the Asian market, with the long-established Singapore Exchange moving quickly to broaden its commodities and derivatives business, and a Chinese-backed mercantile exchange being developed in Hong Kong.
The London Metal Exchange, which dominates global trading in metals, has opened an office in Singapore – its first such presence in Asia. Metals trading is growing rapidly in the region.
Thomas McMahon, SMX chief executive, said the exchange hoped to take some Asian business from rivals in London and Chicago, which have attracted substantial flows from the region because of its lack of international commodity exchanges.
He said the bulk of the business would come from Asia as customers sought to trade products directly related to regional trade flows during the Asian day. The SMX will initially offer trading in four products: a gold futures contract with physical delivery, West Texas Intermediate and Brent crude oil contracts, and a euro-US dollar futures contract.
He said the exchange would introduce US dollar-Australian dollar and US dollar-Japanese yen currency futures contracts before the end of the year, followed by at least two agricultural and index products in the first quarter of 2011.
Mr McMahon said that it was also considering a product that would offer exposure to the Chinese renminbi, although it could not be introduced until further regulatory changes had taken place.
“China has made huge shifts in starting to open up the currency area, but we see the US$-A$ and US$-yen as the next strategic priority for people doing business in Asia,” he said.
Mr McMahon said the SMX was also planning for a big shift in trading of over-the-counter derivatives products as the market responded to pressure from regulators for a shift to trading through exchanges and central clearing parties.
He added: “OTC trading needs to be based on benchmarks, and at the moment there aren’t any in Asia, so they need to be developed.”
The SMX has established a wholly-owned subsidiary called the Singapore Mercantile Exchange Clearing Corporation to manage clearing and settlement and act as a central counterparty for trades.