Cleartrade Exchange, an OTC marketplace for shipping and commodities trading, backed by London’s Freight Investor Services, has launched operations in Singapore.
The Monetary Authority of Singapore has given the bourse in-principle regulatory approval to operate a futures market under the Recognised Market Operator regime.
The exchange will initially offer forward freight agreements for major shipping routes, as well as iron ore and fertiliser swaps on its broker-neutral trading screen, with the potential to expand its offerings to dry bulk and steel contracts.
Richard Baker, the bourse’s CEO, said he was excited to be bringing a single trading screen to a market dominated by phone broking. “It’ll be a five year evolution. Volumes will be small to begin with, mainly block trading of phone-brokered deals. The trading screen is what was missing before,” he explained. “There were too many closed pools of liquidity. But we’ll be able to effectively process electronic orders, with straight-through clearing to LCH.Clearnet.”
It is understood the Anglo-French clearing house has been granted in-principle approval by MAS, and has also been approved by the UK Financial Services Authority.
LCH.Clearnet became the first to clear container freight swaps last summer. Singapore Exchange’s AsiaClear service also clears FFAs.
Baker is confident of qualifying for a Swap Execution Facility designation under the Dodd-Frank Act, admitting the bourse to trading from the US market.
“We were deliberately designed with that in mind,” Baker said, adding that the MAS had helped it understand what would be needed if it was to win the Commodity Futures Trading Commission’s approval.
Baker said he did not fear an immediate challenge from the London Metal Exchange, which has made no secret of its desire to muscle in on the $37bn freight market in recent years.
Last year, the LME submitted a proposal to the Baltic Exchange to form a joint venture for FFA trading. The move met resistance from OTC freight traders.
“[LME CEO Martin] Abbott is ambitious,” Baker said, “but fundamental changes would need to be made to their proposal. The Baltic, too, would need to update their [BaltEx] trading screen.”
Freight Investor Services is already a paid-up member of Cleartrade, which will have free access to the broker’s indices.
Cleartrade is open to membership from interdealer brokers, principal and investment traders and general clearing members.