LCH.Clearnet, Europe's largest independent clearing house, will be the first clearer to offer these services to the container freight swap agreement (CFSA) market.
"Bringing the benefits of central clearing to CFSAs is a real first, paving the way for more liquidity, bringing new participants to the market and managing risk against volatile price movements," Isabella Kurek-Smith, director, energy and freight at LCH.Clearnet, said in a statement.
Freight derivatives or FFAs allow a buyer to take a position on where freight rates will stand at a point in the future. Container contracts offer the same hedging principle as those traded for dry bulk and tanker markets.
The CFSAs will be cash settled on a monthly basis against the Shanghai Shipping Exchange, an established published industry index, the statement said. The contracts will initially be based on routes out of Shanghai to the Mediterranean, north west Europe and the U.S. east and west coasts.
Clarkson Securities Limited, the futures broking arm of leading shipping service group Clarksons, launched the first CSFA in January.
"The launch of clearing for CFSAs represents a major milestone for our market," Clarkson Securities chief executive Alex Gray said in the statement.
The global downturn has hit the container sector hard especially on key routes from Asia to consumers in the West carrying finished goods from electronics to toys. But trade volumes have been picking up in recent months.
Clarkson Securities broker Ben Gibson told Reuters another clearer had signed an agreement with the Shanghai Shipping Exchange.
"We expect them to go live with that facility at some point soon," he said. "We have also had interest from other clearers who have a strong presence in markets other than freight. They are looking to get into the market later this year," he said.
Growth Potential
Gibson said cleared contracts would allow more counterparties to join.
"We think it will allow newcomers to enter the market and allow companies to place more significant hedging trades which will enable us to close larger contract sizes than we have done until now," he said.
"We see trading limitations in an uncleared market."
Dry bulk freight derivatives broker FIS said it was "looking forward to participating" in the CFSA market.
John Banaszkiewicz, managing director of FIS, said containerised exports from Asia to the U.S. and Europe had an estimated value of over $40 billion this year.
"Container derivatives are the missing link in an already vibrant FFA market ... the potential is massive," he said.
London's LCH.Clearnet, Oslo's NOS Clearing and Singapore Exchange (SGX) and the U.S.'s CME Group Inc clear contracts for dry bulk and tanker freight derivatives. (Reuters)
