SMX will offer financially settled contracts, subject to
obtaining regulatory approval from the Monetary Authority of
Singapore. No launch timetable has been finalised.
However, the exchange hopes to be one of the first in the world
to offer instruments of this kind. The New York Mercantile
Exchange launched 500 tonne iron ore swap futures on July 12,
but they have not traded yet.
Then in early September the Indian Commodity Exchange announced
it was teaming with the Federation of Indian Mining Industries
to develop iron ore futures.
SMX’s future will have a contract multiple of 500
times the index, which stood at $138.20 on Monday. A contract
would therefore be worth about $69,000, or 500 tonnes of
Thomas McMahon, chief executive of SMX, said the exchange would
be the first to offer listed iron ore futures, as opposed to
contracts linked to swaps or clearing services for
over-the-counter iron ore derivatives.
"Historically, swaps have developed organically from benchmark
futures," McMahon said.
He said that while iron ore swaps had been successfully traded,
they were more useful to financial market participants than
buyers and sellers of physical ore.
McMahon said SMX’s futures contract would not only
provide great market access, but also be more "efficient" and
"transparent" in a regulated market environment.
Iron ore is one of the actively traded commodities in the
world. In recent years Asian demand, especially from China, has
come to be seen as dominating the market. McMahon said the
futures "absolutely belong in Asia".
The Metal Bulletin Iron Ore Index is also designed around the
Asian market. It is designed to be an accurate representation
of the seaborne merchant market for sinter fines delivered to
It is based on actual transactions, reported to Metal Bulletin
(whose parent company, Euromoney Institutional Investor PLC, is
the same as FOi’s). The index is updated daily,
based on reports from market participants trading on a cost and
freight (CFR) China spot basis.
The index is calculated for a base specification of ore trade,
namely 62% iron content, delivered to Qingdao. Trades that
differ from this, but fall within a target range, are used for
the index with pricing adjusted according to formulae.
McMahon said he had been working on listing iron ore futures
for several months. He had talked to all iron ore index
providers but had settled on the Metal Bulletin Iron Ore Index
as he believed it had a better methodology, with good partners
that "subsequently tracks better".
Platts and The Steel Index also offer indices.