JSE trades gold, platinum and crude oil futures contracts

South Africa’s securities exchange, the JSE Ltd (www.jse.co.za), is offering trading in gold, platinum and sweet crude oil futures contracts on its commodities derivatives market, according to an official announcement on 12 October. Previously, only agricultural commodities were traded.
The JSE recently signed an agreement with the world’s largest derivatives marketplace, CME Group (www.cmegroup.com). This builds on the heritage of the Chicago Board of Trade, Chicago Mercantile Exchange and Nymex (www.nymex.com) and offers the world’s biggest platform to hedge risks, with trading floors in New York and Chicago and the CME GLOBEX electronic trading platform.
The locally listed contracts will be cash-settled, using benchmark gold settlement prices referenced from CME’s COMEX division and platinum and crude oil prices from its NYMEX division. The underlying instrument is a contract traded on NYMEX or COMEX, giving extra liquidity.
Ashley Erasmus, Senior Commodities Trader at Nedbank Capital (www.nedbank.co.za), says: “The two metal commodities should interest local investors as South Africa is the world’s largest platinum producer and the third largest gold producer. The price of the commodities is generally linked to the prices of mining stocks. The liquidity that the current market makers and any new ones will bring to the market can only be beneficial to investors.”
Rod Gravelet-Blondin, Head of the Commodities Division at the JSE, adds: “We are confident that trading will gain traction as more and more investors realise that they can trade these highly traded commodities in an easy and more affordable manner.” In February 2009, the JSE listed a Chicago corn contract. It plans to list more cash-settled commodities in 2010.
The JSE makes the contracts accessible to individuals by trading smaller lot sizes than those traded in the US. The minimum contract size for crude oil is 100 US barrels (15,898.73 litres) with contracts expiring in Feb, June, August and December, while in New York the contract minimum is 1,000 barrels. Each gold and platinum contract size equates to 10 troy ounces and the minimum price movement is set at 100 South African cents per ounce. The gold contract expiry months are April, June, August and December and a minimum of two expiries are always available for trading. The contract for platinum expires in January, April, July and October with a minimum of two expiries always available for trade.
Gravelet-Blondin says: “We are particularly excited about the opportunities that a crude oil contract offers. Oil has a knock-on effect on all sectors of the economy. Notably, as diesel is a major cost in farming, this will give our agricultural market a tool to hedge a major input cost. Organisations in the transport and manufacturing sectors that use large quantities of fuel may also want to hedge their energy usage against the benchmark,” adds.
Nedbank, Standard Bank and Rand Merchant Bank will quote live rand prices for investors. Previously investors wishing to trade these derivatives or hedge exposures had to trade on foreign markets and were subject to exchange controls and limits. The futures contracts still count as overseas assets in terms of limits for pension funds and long-term insurance companies (20% foreign allocation limits) and asset managers and registered collective investment schemes (30%), according to the announcement.
The listing comes at a time when metals prices, including gold, are soaring. Many investors seek gold and other refuges in times of global economic crisis, including the weak dollar.
The JSE connects buyers and sellers in four financial markets: equities, equity derivatives, agricultural derivatives and interest rate instruments (Yield-X). It is in the world top 20 exchanges in terms of market capitalization.

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