ANALYSIS: Abaxx eyes gold, lithium after Friday's nickel debut

Speaking on a podcast published on Saturday, the chief executive of Abaxx Technologies, which owns the exchange, said a gold contract would be in line with the Singapore-based firm's strategy to tackle inefficiencies in established markets.

“If you get to a point where fundamentally the asset itself is highly liquid and good collateral, now you are talking about solving some of the settlement complexities so that it's used in a way that bank ledgers can be moved around quickly,” Josh Crumb said. “I think that’s where streamlining pre- and post-trade together so that you can get towards T+0 settlement and a digital title on the warehouse gold just optimises the whole system. That was a big part of Abaxx’s technology investments from day one and it doesn’t just go for gold.”

For Abaxx, the differences between the physical and bank-dominated London Bullion Market Association (LBMA) market and the financial futures market run by CME Group through its COMEX business represents an opportunity.

“One of the things that has hindered gold is this market structure issue where futures trade in one jurisdiction and spot (over-the-counter, not centrally cleared) are in another,” Crumb added. “Of course you have long settlement times, the long end of the trade gets faster and faster with electronic trading systems but that doesn’t mean you are physically settling the title transfer of the gold in any faster way. That then creates other liquidity, settlement or collateral haircuts because of the slow physical settlement.”

Gold futures are expected to be launched by Abaxx in the first quarter, subject to relevant regulatory approvals, according to a November presentation by the company.

Abaxx Exchange, majority owned by Abaxx Technologies, announced last month the January 10 launch date of its nickel sulphate contract, which will also represent the venue's first new contract since opening in late June with liquefied natural gas (LNG) and carbon futures. Addressing underlying price differentials is central to the nickel offering, according to an Abaxx consultant and former Glencore trader.

“Arbitrage has been at the forefront of our minds when we started talking about how we could develop these nickel and battery metals markets, and you currently see huge differences between prices,” Sacha Lifschitz said.

“Just as an example for nickel sulphate that is between the domestic price in China and the prices in Europe and the United States. That’s exactly where we are trying to help the industry to mature, where we bring in these regional contracts allowing markets to converge and bringing a better price point which reflects the more normal arbitrage price difference for freight cost and financing cost but nothing else.”

Abaxx is also in the process of expanding its battery metals offering with lithium carbonate futures in the hope of spurring derivatives use in the smaller market.

“I think the challenge here is really to explain where the similarities and where the differences are and to really explain what is happening when you just enter into futures position,” Lifschitz said in a podcast. “That is also the case with the convergence between the future and the physical side with our direct delivery mechanism, so explaining what is happening then and where the future position transfers into a physical position.

“We spend a lot of time explaining that and think it's really key to make these contracts which we are developing a success by sometimes even holding the hands of some of the participants and explaining what we are doing.”

Speaking to FOW in July, Abaxx Exchange president of strategy and development Dan McElduff said the firm has designed its technology platform to enable rapid growth.