CME cleared its first JKM LNG swap deal on Thursday, which broking sources said was for 50 lots of the Q1 2018 swap trading at $7.15/MMBtu. CME launched clearing for the JKM swap in 2012, but this was the first time the derivative has been cleared on the exchange.
Historically, much of the OTC JKM swap trade has cleared through ICE.
"ICE has a natural advantage in that it had European natural gas and crude," one market source in Europe said. "Many of the early LNG traders also came from a gas background, so ICE was historically the place to go."
Market participants said that clearing the JKM swap on CME was 30%-50% less expensive than on ICE, which some sources said could be a factor in attracting further activity to the US-based exchange.
"In the end, it is essentially a small component of the total deal, so it might not matter in the long run unless you are doing massive volumes," a trading source in London said.
JKM swap volumes have been growing rapidly over the past few years, with ICE and broker data showing that in July 2017 alone, 4,861 lots of JKM traded. This a record monthly volume equivalent to 16.2 cargoes. In comparison, the whole of 2016 saw approximately 44 cargoes of JKM swaps traded.
"Competition between the exchanges to do better is always good for the market," added the London-based trader.
