* SGX plans to launch iron ore futures in Jan -sources
* Move meant to keep U.S. clients amid Dodd-Frank reforms
* SGX says working to register with CFTC
By Manolo Serapio Jr
SINGAPORE, Dec 13 The Singapore Exchange plans
to introduce an iron ore futures contract next month in a bid to
retain and attract more U.S. clients faced with tougher rules in
trading over-the-counter (OTC) derivatives, industry sources
said on Thursday.
The plan by SGX, which clears bulk of globally traded iron
ore swaps, shows how exchanges outside the United States are
trying to ensure Washington's regulatory net over the world's
$640 trillion OTC market does not dent their U.S. client base.
"Although the U.S. clients remain a small part of SGX's
swaps business, I believe it wants to make the new product
available to them so as not to lose market share," said an
industry source with knowledge of the plan.
The futures contract, which will also be cash-settled like
the swaps, may be launched in late January.
"I think we are unlikely to see other clients based outside
of the U.S. trading these futures contracts, as from my
understanding, the swap and futures contracts will be fungible
on the exchange so as not to create a two-tier market or split
liquidity," said another source.
"I guess brokers will still play an active role in the swaps
contracts finding counterparties and matching prices, while
futures trades will be block trades from the brokers."
SGX declined to be specific about its future plans.
The bourse is working with regulators "to deliver innovative
products to our customers from diverse regulatory regimes",
Michael Syn, head of derivatives at SGX, told Reuters in an
Syn reiterated that SGX is working to register with the U.S.
Commodities and Futures Trading Commission as a derivatives
clearing organisation, or DCO.
Under Washington's Dodd-Frank Act, the CFTC requires all
clearing houses that clear swaps for U.S. customers to be
registered with the regulator as a DCO.
The reforms are aimed at preventing financial catastrophes
in the OTC market - a huge, opaque market that is partly blamed
for fuelling the 2008 global financial crisis.
REGULATORY CERTAINTY OF FUTURES
There was concern the Dodd-Frank rules would push SGX's U.S.
clients to other exchanges, including the CME Group and
Intercontinental Exchange, some of whom have adapted to
the new regulations.
SGX, which clears over 90 percent of iron ore swaps traded
globally, saw volume hit a record 17.7 million tonnes in
September from less than 200,000 tonnes when it launched the
service in April 2009.
But an increasing shift to futures from swaps would be a
natural progression for iron ore whose pricing has rapidly
evolved to spot-based from four decades of yearly-set contracts
in less than two years, increasing the need for steelmakers to
China, the world's top iron ore consumer, is itself looking
at launching iron ore futures contracts through its Dalian
Commodity Exchange after the country's economic planner deemed
that the time is ripe although a launch in the near term is
The Intercontinental Exchange in October converted its swap
contracts, including iron ore which it launched in late 2009,
into futures contracts. The bourse said "customers sought the
regulatory certainty of futures amid the continued evolution of
new swap rules".
The ICE iron ore swap futures contract is based on the
Platts 62-percent iron ore index, and ICE is looking at
launching other iron ore and steel contracts next year, said
Jennifer Ilkiw, vice president for Asia Pacific at ICE.
"Futures are something everyone's familiar with, they have
been regulated for a long time and people understand them,"
"We've heard feedback from some traders that every time they
want to do a swap trade they've got to do about 5-10 minutes of