Singapore’s SMX to launch new gold, silver futures

Reuters: The Singapore Mercantile Exchange will roll out in May new gold and silver futures contracts and is also looking at rubber and sugar contracts, its chief executive said on Thursday, as the fledgling bourse moves further to boost liquidity.

SMX, owned by India’s Financial Technologies, is hoping to capitalise on the brisk trading interest in gold and silver futures contracts traded in India, the world’s biggest gold consumer, and give potential players the opportunity to hedge via the new contracts.

SMX Chief Executive Vaidyalingam Hariharan told Reuters the dollar-denominated E-Gold and E-Silver contracts, to be launched on 8 May, will be cash-settled against the benchmark gold and silver futures contracts in India, run by its sister company, Multi Commodity Exchange.

“We are providing an alternate market because China and India are closed markets,” Hariharan said in an interview.

“People generally import gold in US dollars so it makes sense for them to hedge their risk in the same currency,” he said.

The Shanghai Futures Exchange, China’s biggest metals bourse, is looking at launching silver futures within the year, part of the city’s ambitions to become an international financial centre by 2020.

Established in August 2010, SMX said trading volumes on all its contracts surged to more than 800,000 lots in the first quarter of the year, valued at nearly $30 billion, from around 37,000 lots in the same period in 2011.

Compared to established bourses, volumes on SMX remain modest. Volume traded at the London Metal Exchange, the world’s top market for industrial metals, hit a record 146.6 million lots in 2011, valued at $15.4 trillion.

SMX currently offers 13 contracts, including gold and silver based on New York prices. Other futures contracts include iron ore, oil, copper, currencies and black pepper.

But the surge in SMX’s trading volumes has been accompanied by thin open interest, prompting some industry players to cast doubt on whether investors in the bourse were using the contracts to hedge or if the interest is mostly from retail players.

But as with anything that is new, Hariharan said it takes time for a bourse to gain the confidence of the investing community.

“As far as a new exchange is concerned everyday is a milestone. But definitely the growth direction is there,” he said.

Hariharan said SMX is also looking at launching rubber and sugar futures contracts within the year, with rubber possibly in May if the bourse secures the necessary regulatory approvals. That will add to the exchange’s agricultural basket following the launch of its black pepper contract in February.

SMX is also broadening its trade membership base as it aims to boost liquidity in its contracts further.

Hariharan said he is hopeful the launch of more contracts will pay off.

“You can’t keep on developing markets forever. You need to see some sort of traction in some good contracts which we need to really get,” he said.