ICAP launches electronic broking of Baltic Dry Index
ICAP has launched the first combined voice and electronic broking service for the OTC products based on the BDI
Interdealer broker ICAP has announced that it has launched the first combined voice and electronic broking service for the OTC products based on the leading daily dry bulk shipping indicator, the Baltic Exchange Dry Index (BDI). The new service was launched by ICAP Energy in conjunction with ICAP’s shipbroking arm ICAP Hyde.
The new service complements ICAP’s existing electronic offerings in the OTC freight derivatives market: its screen broking of the freight rate implied by the API 2/ API 4 coal price spread (the dollar per tonne difference between the price of coal in Richards Bay, South Africa and Rotterdam), the spread between this implied freight and Forward Freight Agreements (FFAs) on coal route C4 (the cost of freight on a per tonne basis from Richards Bay to Rotterdam), and its tanker freight derivatives broking service, offering OTC trading in tanker FFAs. The BDI product will also be cash settled on a monthly basis.
Ed Gordon Clark, MD, ICAP Hyde Derivatives, said: “Electronic broking of the Baltic Dry Index will enable market participants to easily access the rapidly developing freight derivatives market through a simple cash settled index swap. ICAP’s Baltic Dry Index screen will open the market to new entrants and build on ICAP’s successful existing voice and hybrid broking franchises”.
Freight derivatives, and the shipping markets in general, now account for a significant portion of ICAP’s commodities revenues. Dry FFA derivative trade volumes have grown substantially over the last few years, and the prospect of significant change in the underlying trade is expected to drive further long term growth in this market.
Recent record levels of fleet investment should be seen as a vote of confidence in the future long-term expansion of seaborne trade in dry commodities driven by the industrialisation of at least three billion people in China, India and the rest of South East Asia. Servicing this industrial expansion and creating a market for these new vessels are unprecedented levels of investment in coal-fired power generation and steel-making capacity in these economies, fuelled by new mining projects worldwide. The potential market for these new OTC products is not only driven by continued expansion of seaborne trade, but also by an increasing proportion of players directly or indirectly exposed to the dry freight market discovering more transparent ways to manage that risk.
