Chinese banks are filling in for European lenders in US agricultural finance, helping preserve trading activity in sugar and other commodities in the wake of MF Global’s collapse, according to a US exchange chief.
Jeffrey Sprecher, chief executive of IntercontinentalExchange (ICE), told analysts that volumes in its US futures business, formerly the New York Board of Trade, had been affected by MF’s bankruptcy last year, as it was one of the largest sugar brokers in the market.
However, he said that volumes for ICE Futures US had rebounded, in part because while European banks had been pulling back from lending to US agricultural businesses, Chinese banks were emerging to provide that finance. Businesses needed to pay for hedging expenses and for warehouse space
“A bigger impact [than MF Global] has been restructuring of European banks,” said Mr Sprecher. “But what we have seen in recent times is that gap is being filled by new banks coming into this market. We have started to see a recovery of open interest …in sugar.”
Data from the exchange show that open interest in sugar has rebounded to some 695,000 contracts after bottoming out at fewer than 500,000 contracts leading up to MF’s bankruptcy in late October. ICE Futures US still saw a 7 per cent decline in average daily volume in the fourth quarter on last year.
However, strong commodities trading across US and UK markets run by ICE, drove an rise in profits and revenues. Net income rose 28 per cent on the year to $127m, on the back of a 15 per cent jump in revenues to $327m.
ICE’s shares rose 5.8 per cent to $129.79, their highest level since last October.
While rival CME Group, which also had large markets in financial futures, saw its volumes fall 2 per cent in the fourth quarter on the previous year, ICE’s overall average daily volumes rose 12 per cent in futures and 10 per cent in over-the-counter derivative markets.
The exchange has benefited from a shift in oil trading from US West Texas Intermediate as the universal benchmark, which is primarily traded by CME, to many traders looking at Brent crude, which is traded by ICE Futures Europe in London.
Mr Sprecher said that natural gas trading volumes were holding up despite record low prices for gas in the US following a boom of drilling in shale formations, because worries about storage capacity were driving longer-term hedging activity.
“OTC energy commissions for January …running above $2m a day mark a big surprise given expected headwinds from low natural gas prices,” said Alex Kramm, analyst at UBS.
This article is subject to a correction and has been amended.
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