Baltic index aims to boost derivatives trading
LONDON, July 1 (Reuters) - The Baltic Exchange said on Wednesday it had changed the way its chief sea freight index .BADI was calculated in a move aimed at boosting freight derivatives trading.
The daily index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser, is compiled from data provided by members of the exchange from international ship broking companies.
The main index, which was launched in 1985, will now monitor 20 major export routes for commodities excluding oil and is a key gauge of economic activity.
The Baltic's main freight index is made up of four indices including the Capesize index, which represents rates for the largest class of merchant vessels carrying iron ore and coal.
From July 1 the index will be calculated taking the timecharter components or daily hire rates of the four indexes instead of the voyage rate, which had been used previously.
A Baltic Exchange spokesman said timecharter routes were already being traded on the Freight Forward Agreement (FFA) derivatives market.
"These are already liquid routes for FFAs and by just taking these it just makes it much easier to trade the dry index," he said.
The Baltic Exchange's chief executive Jeremy Penn said mutual funds, hedge funds and traders had an interest in exposure to dry bulk freight.
"They may also wish to trade it in conjunction with shipping company equities," he said.
"However, their interest is often in a more general exposure to dry freight rather than in the very specific existing liquid derivative contracts," he said in a statement.
Penn said by re-selecting the index so that it consists entirely of components which were already relatively liquid in the derivatives market it would help market players develop and trade products.
"It will enable market-makers to offer pricing and hedge resultant positions easily," he said.
The London-based Baltic Exchange is made up of over 550 member companies including ship brokers, ship owners and operators, and freight derivatives traders.
The exchange's members account for 30 percent of all dry freight fixtures and 50 percent of all oil tanker fixtures.
(Reporting by Jonathan Saul; Editing by Keiron Henderson)
