The Hong Kong Exchanges and Clearing Limited or HKEX announced Thursday it is launching a cash-settled futures contract for iron ore, basing it on TSI Iron Ore Fines 62% CFR China, on November 13.
TSI is a pricing unit owned by S&P Global Platts, and is also the basis of the most actively traded derivative contract outside of China on the Singapore Exchange, or SGX.
The move by HKEX is driven by its desire to "provide one-stop solutions to enterprises for trading, financing, asset management and price risk management" and to meet a "growing need for Hong Kong," the exchange said on its company website.
The introduction of the new ferrous contract would also "complement HKEX's existing precious and base metals products," the exchange said.
Main contracts that are floated are monthly and quarterly basis and the contract size is 100 mt.
The iron ore futures contracts will be screen-traded on the exchange for maximum transparency, efficiency and convenience, the exchange said.
"Competition between exchanges is good for the market and participants prefer transparency in price movements," said a Shanghai based trader.
The general consensus is that liquidity will be crucial in attracting market participants. "It really depends on liquidity; that is the most important factor," said a Beijing based trader.
The move comes ahead of the merger between TSI-62% and Platts IODEX from January 2, 2018; the former is widely used for the settlement of derivatives contracts and the latter for the settlement of physical iron ore contracts.
