Leading interdealer broker Icap has launched the first combined voice and electronic broking service for OTC products based on the leading daily dry bulk shipping indicator, the Baltic Exchange Dry Index. The service has been launched by Icap Energy in conjunction with Icap's shipbroking arm Icap Hyde.
The new service complements Icap's existing electronic offerings in the OTC freight derivatives market, its screen broking of the freight rate implied by the API 2/API 4 coal price spread, the spread between this implied freight and forward freight agreements on coal route C4, and its tanker freight derivatives broking service, offering OTC trading in tanker forward freight agreements. The BDI product will be cash settled on a monthly basis.
'Electronic broking of the Baltic Dry Index will enable market participants to easily access the rapidly developing freight derivatives market through a simple cash settled index swap,' says Ed Gordon Clark, managing director of Icap Hyde Derivatives. 'Icap's Baltic Dry Index screen will open the market to new entrants.'
Freight derivatives, and the shipping markets in general, now account for a significant portion of Icap's commodities revenues. Dry forward freight agreements derivative trade volumes have grown substantially over the past few years, and the firm expects the prospect of significant change in the underlying trade to drive further long-term growth in this market.
It also sees recent record levels of fleet investment as a vote of confidence in the future long-term expansion of seaborne trade in dry commodities, driven by the industrialisation of at least three billion people in China, India and the rest of South-East Asia.
Servicing this industrial expansion and creating a market for these new vessels are unprecedented levels of investment in coal-fired power generation and steel-making capacity in these economies, fuelled by new mining projects worldwide.
Icap says the potential market for these new OTC products is driven not only by continued expansion of seaborne trade, but by an increasing proportion of players directly or indirectly exposed to the dry freight market discovering more transparent ways to manage that risk.
Icap Hyde offers a broad spectrum of shipping services, including dry cargo chartering, sale and purchase, freight derivatives, research, yacht-broking and shipping web design, from offices in London, Copenhagen, Hamburg, Shanghai, Gibraltar, Singapore and Athens.
Icap is a voice and electronic interdealer broker and a source of global market information and commentary for professionals in the international financial markets. The group is active in the wholesale markets in interest rates, credit, energy, foreign exchange and equity derivatives, and has an average daily transaction volume exceeding USD1.5trn, more than 60 percent of which is electronic.