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Baltic Exchange Faces Competition from EEX

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November 19, 2014

ReutersBy Jonathan Saul

LONDON, Nov 19 (Reuters) – Britain’s Baltic Exchange faces competition from EEX, part of Deutsche Borse, as it tries to revive its loss-making Baltex dry bulk freight derivatives platform.

Baltex was launched by the centuries-old Baltic Exchange in June 2011 as the first central electronic marketplace for freight forward agreements (FFAs), which allow investors to take positions on freight rates at a point in the future.

But the platform is barely used by brokers who prefer trading FFAs by phone or on their own screens to maximise commission.

The privately held Baltic Exchange and LCH.Clearnet reached an agreement in June that allows FFA trades to be cleared and reported via Baltex, designed to increase transparency in a period of tougher global market regulatory scrutiny.

Baltex now faces a challenge from CLTX, an exchange majority owned by parent Deutsche Borse , which has a similar agreement in place with LCH.Clearnet. Both are expected to clear trades via their platforms in coming weeks, they say.

Baltic chief executive Jeremy Penn said CLTX was “positioning itself as a competitor to Baltex”.

“We are confident that we will have a sufficiently large market share from the start to mean that Baltex is viable and we can go forward with confidence,” he told Reuters.

CLTX CEO Richard Baker said Baltex, run by a unit owned by the Baltic, needed to achieve critical mass, adding that his exchange also offered other dry bulk commodities products.

“Cleartrade (CLTX) and Baltex had many opportunities to work together. We tried, but we could never make it work,” he said. “I do think we have built a bigger and better business than Baltex is and ever will be.”

Richard Hayes, chairman of the FFABA brokers’ association, said market players were “comfortable” using both platforms. “But I don’t expect this to lead to them to become more liquid trading venues,” he added.

LCH.Clearnet, owned by the London Stock Exchange, said it hoped the development would bolster FFA volumes.

“Providing this service over two platforms gives the market choice,” said Isabella Kurek-Smith of LCH.Clearnet. “It is possible that other venues may wish to offer block futures into our clearing service.” (Editing by Veronica Brown)

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