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CME gives up on JADE with SGX sell-up

16 November 2007

CME Group has abandoned the Joint Asian Derivatives Exchange (JADE) project, selling its 50% stake in the venture to co-owner Singapore Exchange (SGX) for just S$1.14m ($800,000).

CME Group inherited the stake when it acquired Chicago Board of Trade (CBoT) earlier this year, but as early as October 2006 – long before the takeover was completed – doubts were being raised about the new owner’s commitment to the joint exchange.

A transfer of ownership was hinted at in September when SGX announced that JADE’s contracts would be transferred to its own QUEST trading system in January 2008, having previously traded on E-CBoT and been cleared by SGX. The transfer will remove any operational utilisation of CME Group systems, and the equity purchase confirms the Chicago exchange’s abandonment of the project.

A source familiar with JADE told FO Week that Singapore Exchange (SGX) was given the contractual option of taking full control over the exchange if CBoT was sold. As such SGX decided to take the reigns.

Despite’s SGX’s purchase there remains significant doubt about JADE’s long-term future, with its parent only willing to offer a guarded commitment to the platform. Although Benjamin Foo, head of clearing and commodities business at SGX, said the senior exchange “will continue to offer” the crude palm oil (CPO) and rubber futures listed on JADE, he made no specific reference to the subsidiary in SGX’s ongoing commitment to “the development of the commodities market in Asia in partnership with market participants”.

JADE has failed to attract significant volume to either of its products since the exchange launched rubber futures in September 2006. Although delays to the launch of CPO, thanks to the collapse of a pricing deal with Bursa Malaysia, were initially blamed for the slow start, that contract has also been lightly traded since it was eventually listed in June this year. Promises of additional contracts have not come to pass; market participants now doubt they will ever emerge, with SGX believed more likely to centralise commodities markets at the parent exchange.

Both SGX and CME have insisted that the failure of JADE as a joint venture will not affect their working relationship. Seck Wai Kwong, senior EVP and CFO at SGX, said the two exchanges “have very strong collaboration in other areas like our mutual offset arrangement, and we will continue to seek new ways to work with each other,” while Phupinder Gill, president at CME Group, said his firm “remains committed to Asia, and... will continue to explore ways to collaborate with SGX.”

Exchange officials also struggled to make JADE a global marketplace as the Monetary Authority of Singapore (MAS) failed to approve key measures that would have allowed for more international access to JADE.

“MAS just isn’t ready to go global,” the source said. “All the exchanges have access hubs in Singapore and there is no issue with them from the market participants connecting directly. But when you look at SGX, MAS would not allow them to compete on the same terms.”

With such regulatory hurdles ahead, it seems likely that JADE will operate as a domestic market, the source said.
Michael Coleman, a JADE member with Aisling Analytics in Singapore told FO Week that JADE may benefit from full ownership by SGX.

“JADE clearly needs a make over and a re-launch,” Coleman said. “SGX seems to be keen on revitalising and potentially the 100% ownership by the local player is positive.”

According to SGX, the transfer of ownership will be complete by mid-November. The negligible residual value of JADE was confirmed by SGX’s prediction that the purchase will have no impact on its own earnings per share or net assets per share when it reports its annual results.

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