In late December, as many of us were gearing up for the holidays, the Chicago Board of Trade (CBOT) and the Singapore Exchange (SGX) announced their agreement to form a fifty-fifty joint venture company called the Joint Asian Derivatives Pte. Ltd.
Its purpose is to establish a commodities derivatives market, to be known as the Joint Asian Derivatives Exchange (JADE), which is projected to begin operations by the end of the third quarter of 2006. In the initial phase, the new exchange will be operated by Singapore Exchange Derivatives Trading Ltd.
The joint venture will develop commodity contracts to be traded on JADE. All trades will be cleared by SGX's derivatives clearing house. But the new products will be hosted on CBOT's electronic trading platform, which is a major driving factor for the US exchange's expansion plans in Asia. With Singapore as its telecoms hub where trades can be made instantaneously, it offers global customers 22 hours a day of liquidity.
"Asia doesn't have the history of market outcry, but many people in Asia are accustomed to electronic trading," explains Christopher Malo, executive vice president for marketing and business development.
Pushing international expansion, such as JADE, is a way for CBOT to more rapidly expand beyond the traditional financials and commodities trading in the pit in downtown Chicago (even if much of that is very high-tech these days thanks to Blackberries and head phones). Asia, of course, is a logical target market. In 1994 Asian exchanges made up 12% of global futures volume - a decade later, the volume had trebled, according to the Futures Industry Association.
"We're excited that our initial Memorandum of Understanding with SGX has evolved into a defined action plan to launch a new commodities exchange in Singapore," comments Bernard W. Dan, CBOT President and CEO. "Our agreement with SGX to build a premier electronic marketplace in this growing economy demonstrates our commitment to meeting the growing demand for liquid risk management tools in the Asian-Pacific region."
CBOT, after all, is growing. It announced in early January that the exchange achieved the highest yearly total volume recorded in its history, with more than 674 million contracts traded in 2005. Total annual volume rose 12.4% over the prior year, making 2005 the fourth consecutive record-breaking year for the CBOT.
Its efforts to boost electronic trading are paying off: electronic volume represented 65% of total exchange volume for the year, up from 58% in 2004. Electronic average daily volume grew 24% to 1.7 million contracts from 1.4 million contracts reported in 2004.
For Singapore, this joint venture is part of the much touted effort to become the hub of Asia, a title sought after by nearly every other major city in Asia.
As Hsieh Fu Hua, SGX chief executive officer says, "The joint venture is key to SGX's strategic focus to be an Asian Gateway. It represents a further step in Singapore's development as a leading derivatives trading and risk management centre in Asia. Just as we have pioneered successful partnerships with other leading exchanges, we are excited to collaborate with CBOT to establish an Asian commodities exchange that meets the increasing demand for hedging Asian product prices."