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LME approaches Baltic Exchange for joint venture on FFA trading

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The London Metal Exchange has submitted a formal proposal to bring trading of forward freight agreements on-exchange in a joint venture with The Baltic Exchange. 

The LME proposal is to create a new, fully regulated exchange to bring transparency, efficiency and a robust technology platform to the dry-bulk FFA market, in collaboration and co-operation with all freight market participants. 

The Baltic and its members are being invited to consider a substantial equity participation – between 25 and 50 per cent – in a new exchange, which the LME proposes would have regulated investment exchange status.

In addition, the LME’s support for the new venture will include its electronic trading capabilities to attract new long term volume and liquidity growth in FFA trading.

The LME contends that FFA trading, which currently takes place only on a telephone, over-the counter market, is opaque and constrained from future expansion. OTC markets are also currently facing severe regulatory and political pressures to move onto transparent, regulated and cleared exchanges. 

Baltic Exchange is not a recognised investment exchange under Mifid/FSA regulation. The LME is an RIE and Mifid compliant and is regulated as such by the FSA. It is the intention of the LME to seek RIE authorisation for the new joint venture.

LME chairman Donald Brydon says: “We have been in discussions with various Baltic parties for some time now. This proposal commands some compelling logic for expanding the FFA market in a joint venture with the LME. Our original approaches, based on electronic trading on a regulated exchange, are now even more relevant given the regulatory and political pressures all OTC markets are facing. This is a timely opportunity for an LME/Baltic joint venture and we look forward to developing this important London-based market.”

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