Singapore's SMX to trade WTI crude oil futures

Asia's newest commodity exchange, the Singapore Mercantile Exchange (SMX), yesterday said it will start trading the benchmark West Texas Intermediate (WTI) light sweet crude oil futures contract on its electronic trading platform when it goes live in August. This means the exchange has now identified two contracts that will be available from day one.

An average of 600,000 futures contracts on WTI are traded every day around the world, equivalent to about 600 million barrels of oil.

"We see this as the first step towards establishing a broad base and multiple product facility for energy hedging, trading and investing from Singapore. The addition of a globally recognised benchmark to the existing suite of products to be launched on SMX is complementary to our product strategy of establishing correlation and basis valuation for the Asian suite," said Thomas J. McMahon, chief executive officer of SMX.

The futures contract will be settled in US dollars and cleared on the SMX. It will be traded in units of 1,000 barrels per unit, and for the current month as well as the following 11 months. The price of each contract will be based on quoted prices for one barrel and the final settlement price for each month will be set on the last trading day. The last trading day will be the third US business day prior to the 25th calendar day of the month immediately before the contract month -- for instance the last trading day for a June contract will be shortly before May 25.

"Our complete energy complex will allow for hedging and investment across the entire energy product supply chain," added McMahon.

Yet, perhaps curiously, the first instrument unveiled by SMX on May 21 was a gold futures contract. The contract, which will be the first in Singapore to be physically settled, will be delivered at high security vault facilities in Singapore, including a new state-of-the-art vault operated by J.P. Morgan. 

The contracts will not be immediately interchangeable with those from other exchanges. 

But, "there is potential for margin offset with contracts from other exchanges," said a spokesperson. "It is SMX's plan to set up cross-exchange agreements with other exchanges. We have set this in motion by signing our first MOU (memorandum of understanding) with Tocom (Tokyo Commodity Exchange) to jointly develop new business opportunities."

SMX is backed by Financial Technologies (India), which operates 10 exchanges in India, Dubai, Singapore, Africa, Mauritius and Bahrain. It is a member of the Futures Industry Association, the Swiss Futures and Options Association, the Association of Futures Markets and the Futures and Options Association.

The regulator of Singapore's financial markets -- the Monetary Authority of Singapore (MAS) -- gave SMX in-principle approval last year. Yet, with just two months or so before opening, SMX is keeping tight-lipped about future developments. In reply to enquiries from FinanceAsia, a spokesperson declined to be drawn on which other instruments will be revealed, and said that, "we will be making a series of announcements on other contracts that will be traded in the coming weeks".

The spokesperson also declined, for the time being, to name members of the new exchange, but said some will be announced soon.

SMX will not be Singapore's first commodities exchange. The Singapore Commodity Exchange (Sicom) was established back in 1992 and in other guises has a much longer history. Sicom, which specialises in the trading of rubber, coffee and, most recently, gold contracts, is a wholly owned subsidiary of the Singapore Exchange. 

But, SMX plans to offer a comprehensive product range of contracts that will include precious metals, base metals, energy, agriculture commodities, two commodity indices, currencies and other financial instruments.

"This is in line with the exchange's endeavour to be the premier Asian commodity derivatives exchange for trading key energy derivatives," according to yesterday's statement.