LCH.Clearnet today announced the planned launch of its new service in clearing over-the-counter (OTC) contracts on the forward freight agreement (FFA) market.
The launch, planned for July, will provide this rapidly expanding marketplace with all the benefits of broadly based central counterparty (CCP) services; the elimination of counterparty credit risk, multi-lateral netting, improved operational efficiency and STP.
The clearing service will cover 5 wet (crude and refined products) routes and 7 dry (dry bulk commodities) routes in this thriving market, which allows charterers and shippers to hedge their shipping exposure and provides substantial arbitrage opportunities to its financial institution and trading company participants. It will be open to the entire FFA market, by allowing OTC brokered or bilaterally executed trades to be registered directly with LCH.Clearnet for clearing.
The launch of the OTC clearing service will also complement the prospective launch of an FFA online trading platform, to be called C.I.F., jointly owned by Clarksons Securities Ltd, Ifchor SA, and Freight Investor Services Ltd. These will together provide the market with an unique opportunity both to improve transparency and increase liquidity, as existing counterparty credit issues are removed and participation in the market is facilitated.
Richard Heyman, Director – Exchange & Commodity Derivatives at LCH.Clearnet, said: "In responding to specific customer demand for the provision of clearing services for FFA's, LCH.Clearnet is further broadening its range of clearing services across global commodity and energy markets."
John Banaszkiewicz, Managing Director at Freight Investor Services Ltd, said: "The global freight derivative market has grown to a $30 billion industry, and it is great news that a highly capitalised Clearing House such as LCH.Clearnet will offer its services to the shipping and financial community. Their new service will open up this exciting marketplace to increased liquidity from both existing and new entrants."
Philippe van den Abeele, Managing Director at Clarkson Securities Ltd, said : "I am delighted that LCH.Clearnet is providing a competitive freight derivatives clearing service. The FFA market will now be taken seriously by a much wider audience, as counterparty risk will be managed by one of the world's strongest clearing institutions."
Guy Campbell, Director of Ocean Freight at Koch Carbon LLC, and Chairman of the Freight Market Users' Information Group (FMUIG), commented: "We welcome the addition of the LCH.Clearnet service to the market. I believe Credit Risk Management is key to increasing liquidity in our markets, and hope the market embraces these new services which will bring FFA contractual wording and risk mitigating solutions forward to the cutting edge."