The
Evolution of an Asset Class
by Rod Gravelet-Blondin
  n
October 2009, for the first time local investors were able
to trade in gold, platinum and sweet crude oil commodities
listed on the JSE’s commodity derivatives market. The
introduction of these commodities is due to an extension of
the existing licensing agreement that the JSE holds with the
CME Group, the world’s largest derivatives market.
With the extension, investors are able to
trade in futures contracts referencing benchmark gold prices
from the CME Group’s COMEX exchange and platinum and
crude old prices from its NYMEX exchange. “Expanding
the existing relationship with CME Group to incorporate these
additional products is an achievement for the South African
derivatives market,” says Rod Gravelet-Blondin, head
of the Commodity Derivatives Market at the JSE. “South
Africa is the world’s largest platinum producer and
third largest gold producer and so it made sense that we needed
to offer South African investors related futures products
which they could use either to gain exposure or hedge their
exposure to a listed equity stock involved in the two commodities.
The gold and platinum settlement prices from NYMEX and COMEX,
two highly liquid exchanges, will ensure that the locally
listed contracts reference an international benchmark for
final settlement. This will bring much comfort to investors
who will be able to access the international market via these
rand-denominated contracts.”
While the metals contracts are more likely
to appeal to sophisticated investors and gold and platinum
producers using them to hedge their production, any South
African can trade these through a JSE registered commodities
broker. The smaller contract sizes, for instance a crude oil
contract could be obtained for only 100 barrels while in New
York the contract minimum is 1000 barrels, which makes these
attractive to the local investor. “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.
We also expect interest from many other industries, from transport
to manufacturing,” adds Gravelet-Blondin.
Benefits
- Contracts are rand-denominated and settled in Rands
- Smaller contract sizes adapted for the South African
market
- No foreign exchange permission required for corporates
and individuals
- Trading on the exchange offers guaranteed settlement,
transparency and daily revaluation of positions
Uses of trading
these commodities derivatives contracts:
These new contracts offer local investors
hedging and speculative avenues including the following:
Hedging
- The two metal commodities are bound to be of interest
to local investors as South Africa is the world’s
largest platinum producer and the third largest gold producer.
These two commodities reference the international market
for prices which could be used to hedge the share prices
of gold and platinum mining stocks listed on the JSE,
South African investors are now able to hedge their mining
investment risk in these companies.
- Platinum and gold mining companies will now have another
alternative hedging tool for their local production.
- Oil has a knock-on effect on all sectors of the economy.
Diesel is a major input cost in farming, manufacturing
and transport. These industry sectors will be able to
hedge their oil component against fuel price fluctuation
through the sweet crude oil contract.
Speculation
- A weak dollar and recent inflation fears in the US
have fuelled demand for mining stocks, particularly gold.
South Africans keen to speculate will be able to take
a position on the movement of the international gold and
platinum price in Rand terms.
- These contracts give local investors an opportunity
to access off-shore exposure.
The risk factor
No investment trading product can offer returns
without the investor having to assume some risk. The JSE cautions
that as with any other investment product, investors need
to be aware of the risks associated with trading these commodities
futures contracts.
To find out more about investing in these
international commodity derivatives please contact your broker
or email commodities@jse.co.za
| About
the CME Group
Building on the heritage
of CME, CBOT and NYMEX, CME Group serves the risk management
needs of customers around the globe as the world’s
largest and most diverse derivatives marketplace. The
exchanges within the Group offer products across all
major asset classes, including futures and options based
on interest rates, equity indexes, foreign exchange,
energy, agricultural commodities, metals, weather and
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