Dry bulk freight derivatives take the plunge

The overall average lot size per contract cleared through NOS in July was 144. Contracts traded on-screen at Imarex showed a distinct reduction in size.

During July, dry bulk contracts traded on the Imarex screen fell to an average of 94 lots (1 lot = 1 day) from an industry average of over 170 lots. Many contracts were traded in sizes down to 5 lots.

In any financial derivatives market, the key difference between a "trading market" and a "hedging market" is the size of contracts and how often they trade.

In a hedging market, contracts are large, span long periods of time and are traded rarely by a small number of market participants. Today's dry bulk derivatives market has these characteristic, a key reason for its relatively low liquidity.

In a "trading market", contracts are small, span shorter time periods, and are traded often by a larger number of market participants. Today's tanker derivatives market has these characteristics largely because of active screen trading at Imarex. As much as 40% of all tanker freight derivatives, including freight options, are now done on the Imarex screen.

There is no doubt that traders prefer the more efficient and more liquid opportunities which come from electronic and cleared trading of smaller lot sizes both in the tanker and the dry bulk markets.

Imarex has worked ceaselessly for 3 years to bring about a change in the way dry bulk derivatives are traded. The work appears to paying off.

Firm dry bulk prices for all but the most illiquid trade routes are now a regular feature of the Imarex screen. 

Transactions in sizes down to 5 lots - effectively 5 days on the quarter and calendar, have been concluded on screen between Imarex members with instant straight through clearing from NOS, the Norwegian Futures and Options Clearing House.

In the months to come, Imarex plans to invite all dry bulk principals to try out the highly efficient screen trading of smaller lot sizes, and to get a taste of the future direction of the dry bulk freight derivatives market.

Consensus among traders is that a "trading market" for dry bulk freight derivatives would benefit all but a very few of those participating in the market today.

To gain immediate access to the Imarex screen, or to speak with an Imarex Exchange Broker, please call Kim Krohg in Oslo on tel: +47 2389 4220 or Arne Petter Kolderup in Singapore on tel: +65 6720 0050.

You can also email Imarex at "response@imarex.com" for more details.