Dear FFABA Members and Market Users,
As we come to the end of a somewhat turbulent first half of 2017, I thought now would be a good time to let you all know what the FFABA has been up to for the last six months, plans for the second half and discuss some of the talking points in the market at the moment.
1 – The market so far this year
2017 has been a bit of a rollercoaster so far, with us all getting very excited as the rates crept up in Q1, only for us to end the first half with Capes trading below Panamax levels – quite the ride! From an FFA perspective, the rise in prices really helped to drive some impressive volume growth – up 11% versus the last 6 months of 2016 – and whilst this has been tempered somewhat by a slowing in options volumes, I feel that the underlying volume growth should encourage us all to keep pushing this market through the second half of the year.
2 – Marketing and events
The FFABA has made real efforts to grow its presence and relevance in 2017 and we have been very active in promoting the benefits of effective hedging through the use of FFAs.
We held an incredibly successful day during Iron Ore week, and have had very strong feedback from the events we have put on in Japan, Shanghai and Greece. Since November, the Baltic has had 40 new members sign up, so I think we can steal a bit of credit for that. Thanks to everyone that helped pull these events together.
The next six months will see us focus on an FFA event on 13 September, during London International Shipping Week. There are some preliminary details via the link below but I am told that there will be hundreds of decision-makers attending the week, so if you are interested make sure you book early.
3 – LCH exits the market
It is with regret that I report that following a strategic review, LCH.Clearnet (LCH) has notified the FFA market that, from 28 December 2017, it will no longer be providing clearing services for dry freight derivatives contracts, as well as options contracts. LCH has entered into a Novation Agreement with European Energy Exchange (EEX), giving its clients and members the option to novate their open interest from LCH to EEX. The novation option is only available between LCH and EEX.
If you do not wish to have your positions novated, you can either trade out of your positions in the usual way before the novation date, subject to normal fees or, should you wish to transfer your position to another clearer, you will need to close your position on LCH in the normal manner and re-open the position on the exchange of your choice. The FFABA understand that both SGX and Nasdaq will be offering this service free of charge. Members requiring further information should speak to their General Clearing Member (GCM).
LCH were the first clearer to enter the space in 2005. It seems the clearers can be just as aggressive as the brokers when it comes to the pursuit of market share.
At this juncture, I feel it imperative that we reflect on the valuable service that clearers provide to market, and make sure that we are all aware of the pitfalls of forcing clearers to provide this service at rates that are unsustainable for them.
Reverting to the risks and uncertainties of a non-cleared market, to my mind at least, clearly outweighs the cost of the service provided by the clearers.
I think we should express our thanks to LCH for the pioneering work they did to help support our market and wish them well for the future.
Full details can be found at the following links :-
4 – Other News
Following the recent FFABA meeting where some Panamax grain routes were suggested, the Baltic is going through its selection criteria for suitable Panellists with the aim of commencing Private Trial reporting within the coming 2-3 weeks. Market feedback has been very positive and we are hopeful that ultimately this could be a tradeable FFA that could generate good volumes. The route details are shown below, if anyone has any questions then please contact either the Baltic or an FFABA member.
- Mississippi river to Qingdao (13m arr draft). 66,000mt HSS, 10% more or less in owner’s option, free in and out, trimmed. 10,000mt Saturdays, Sundays + holidays excluded loading, 8,000mt Saturdays, Sundays + holidays excluded discharge. 24 hrs turn time at loading port, 24 hrs turn time at discharge port. Loading 10/20 days from index date. Age max 15 years. 5% total commission.[routing is via Cape of Good Hope]
- Santos to Qingdao (13m arr draft). 66,000mt HSS, 10% more or less in owner’s option, free in and out, trimmed. 8,000mt Saturdays, Sundays + holidays excluded loading, 8,000mt Saturdays, Sundays + holidays excluded discharge. 24 hrs turn time at loading port, 24 hrs turn time at discharge port. Loading 10/20 days from index date. Age max 15 years. 5% total commission.
Finally, following feedback in Asia the Baltic is canvassing opinion regarding the possibility of publishing the Panamax curve in line with the Cape at 11:00, which we feel is very positive for helping to encourage more Asian market participants. Any comments or feedback on this should be directed to them.
If you have ideas and feedback to contribute please let me know. The FFABA is your association – your input makes sure we are reflecting the needs of the market.
Up The Clarets! Oh sorry, I mean, up the Baltic!
About the FFABA
The Forward Freight Agreement Brokers’ Association (FFABA) is an independent association of FFA broking Baltic Exchange members formed in 1997 and serviced by the Baltic. The Association runs regular forums with the Baltic Exchange to promote FFA trading and bring together market participants.
The FFABA Aims to:
- Promote the trading of Forward Freight Agreements (FFAs)
- Promote high standards of conduct among market participants
- Liaise with the Baltic Exchange to ensure the production of high quality indices for use by the freight futures industry
- Provide a forum for brokers and principals to resolve problems as they arise
- Develop and promote the use of standard contracts
- Develop the use of other ‘over the counter’ and exchange traded derivative products for freight risk management
For more information and a list of members, please see: http://www.balticexchange.com/ffa/ffaba/