The Singapore Exchange (SGX) and the Tokyo Commodity Exchange (Tocom) have signed licensing agreements with energy information provider Platts, a division of the McGraw-Hill Companies, to use Platts' Middle East benchmarks for the SGX and Tocom Middle East crude oil (Meco) futures contracts.SGX plans to trade its US dollar-denominated Meco futures contract on the SGX electronic trading system subject to regulatory approval, while Tocom plans to change the rules on its existing crude oil futures contract to use Platts prices in the calculation of the final settlement price, subject to approval by relevant committees.
The Japanese exchange currently uses an average of prices for its last trading day streamed from data vendors Bloomberg, Reuters, Petroleum Argus, ICIS-LOR, RIM Intelligence and Telerate. This currently falls on the third to last business day of the month.
But based on feedback from exchange members and oil market participants in Japan, Tocom will now make changes to its settlement method and last trading day. Although specifications of the changes have not yet been made public, introducing Platts monthly average prices will require the exchange to alter its last trading day to either the last business day of the month or the first business day of the next month, said a Tocom spokesperson.
"By using Platts' prices, which are the benchmark for Middle East crude oil destined to Asia, the correlation between futures and physical markets will be strengthened, and the hedging function of our exchanges will be enhanced," said Tocom chairman Tadayoshi Nakazawa.
Ang Swee Tian, president of SGX, added that the Singapore Exchange had also spent considerable efforts in consultations with active market participants in the oil trading and risk management industry. "We believe our co-operation with Tocom and Platts will allow us to serve the Asia-Pacific and international oil market participants in a more positive and transparent manner for their trading and risk management needs," he said.
The convergence between Platts Middle East assessments and the SGX/Tocom settlement mechanism will enable crude producers, consumers and traders to have a hedging tool that perfectly matches their financial exposure with their loading volumes, claimed Platts president Harry Sachinis. "Platts is confident that users will be pleased to have a futures contract that will derive its value fully from the physical commodity as it normally trades and prices," he added.
The exchanges will also work towards aligning their contract specifications to deepen contract liquidity for market participants.
SGX plans to size Meco futures contracts at 1,000 barrels, listed on a six serial months basis. Tocom will also run six-serial-month contracts, but contracts will be 100 kilolitres in size.
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