* Dry freight market in one of worst slumps on record
* LME made earlier overture to Baltic in 2010
By Jonathan Saul and Susan Thomas
LONDON, July 9 London's centuries-old Baltic
Exchange has received interest from exchanges and financial
operators, including the London Metal Exchange and CME Group,
for its dry freight derivatives platform, sources familiar with
the matter said.
Volumes have remained low on the loss-making Baltex
multilateral trading facility since it started in June 2011, but
strategically it provides an attractive gateway into freight,
bulk commodities industry sources say.
Baltex is the first central electronic marketplace for
freight forward agreements (FFA), which enable investors to take
positions on freight rates at a point in the future.
"The Baltic Exchange has received expressions of interest.
There have been exploratory talks. It is at an early stage," one
The LME and CME both declined to comment on Tuesday.
Sources also said LCH.Clearnet, one of the world's biggest
clearing houses which also clears the biggest slice of overall
FFA contracts, had expressed interest in the platform.
LCH.Clearnet declined to comment separately on Tuesday.
Baltic Exchange Chief Executive Jeremy Penn said: "The
Baltic has business relationships with a number of exchanges and
clearing houses and therefore is often in dialogue with them.
Such dialogue of course includes matters related to Baltex. This
does not mean that there are active negotiations under way."
Baltex is run by a subsidiary owned by the Baltic, the hub
of the global shipping market since its founding in 1744. Baltex
recorded a loss of 682,093 pounds ($1.02 million) in the year to
end March versus a loss of 704,166 pounds in the previous year.
In the Baltic's annual report published last month, chairman
Quentin Soanes said the major concern for the board over the
past year had been the "disappointing performance" of Baltex.
"Your board will be vigilant to ensure that swift action is
taken if a point is reached where support for the project no
longer makes sense," Soanes wrote in the report.
The LME, founded in 1877 and sold last year to Hong Kong
Exchanges and Clearing for $2.2 billion, had made
overtures to the Baltic in 2010 to launch a jointly-run freight
derivatives platform but was rebuffed then by FFA brokers.
HKEx Chief Executive Charles Li said this year the company
will use the LME's status as the world's biggest metals
marketplace to extend HKEx's commodity trading platform into
ferrous metals, such as iron ore, coking coal and energy.
"HKEx is looking at potential new products. They have said
that they are looking across all sorts of asset classes," a
metals industry source said. "Freight is of interest, and has
been, given its relation to bulk commodities trading."
HKEx has signed a flurry of memorandums in recent months,
including one in June with China Beijing International Mining
Exchange. CBMX serves as a platform for trading mining rights
and also as an operating organisation of China Iron Ore Spot
The privately-owned Baltic Exchange has struggled to coax
brokers to boost usage on Baltex. Brokers, who have been trading
FFAs by phone or on screens of their own, fear that the use of
Baltex will lead to a loss of commission business.
Despite its name the Baltic Exchange is no longer the forum
for trade in the chartering of vessels and produces daily
benchmark rates and indices that are used to trade and settle
freight contracts as well as data used in the FFA market.
A source at a top freight broker expressed alarm at a
potential sale to a third party.
"By any measure Baltex has not achieved any success at all,"
the source said.
"The Baltic produces information fed to them by physical and
FFA brokers. That tap can be turned off if it is felt that the
Baltic is acting outside of the interests of that brokerage
The entire FFA market has shrunk as the dry bulk shipping
market has suffered one of its worst and longest ever downturns.
Owners had ordered large numbers of new vessels between 2007 and
2009, just in time for the collapse of the global economy after
the 2008 financial crisis.
With the growing importance of Asia as centre for the global
shipping market, the Baltic is now contending with challenges
from potential rivals. Last year the Shanghai Shipping Exchange
launched China's first dry bulk and oil import indexes.
The dry FFA market, which had grown to an estimated value of
$150 billion in trades in 2008, fell to around $8 billion to $12
billion last year, according to market estimates.