In a move designed to help boost derivative trading, the Baltic Exchange will be implementing changes to the way in which the Baltic Exchange Dry Index is calculated.
In a move designed to help boost derivative trading, the Baltic Exchange will be implementing changes to the way in which the Baltic Exchange Dry Index is calculated.
As of 1 July 2009, the BDI will be calculated taking the timecharter components of the Baltic’s capesize, panamax, supramax and handysize indices. Each vessel type’s routes make up 25 per cent of the BDI.
The BDI is published every working day at 1300 (London) and is based on professional shipbroker assessments. The index is an independent barometer of the cost of transporting dry bulk commodities including iron ore, coal and grain by sea.
According to Baltic Exchange chief executive Jeremy Penn, the change will enable financial market players to develop and trade derivative products on the index with greater ease and understanding.
"There has been considerable interest from the wider investment and commodity trading community in the BDI in recent years,’ he says. ‘Mutual funds, hedge funds and traders have an interest in exposure to dry bulk freight and may also wish to trade it in conjunction with shipping company equities. However, their interest is often in a more general exposure to dry freight rather than in the very specific existing liquid derivative contracts. By re-selecting the index so that it consists entirely of components which are already relatively liquid in the derivatives market, we believe we are making this process considerably easier. It will enable market-makers to offer pricing and hedge resultant positions easily."
