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Freight Futures Market Avoids Tougher EU Information Disclosures

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October 14, 2016

ReutersBy Jonathan Saul

LONDON, Oct 14 (Reuters) – The European Union’s securities markets regulator has dropped proposals to make participants in the multi-billion dollar commodity derivatives market for freight rates disclose knowledge of loading conditions, the Baltic Exchange said.

The European Securities and Markets Authority (ESMA) published its report on Sept. 30 on its proposals for more disclosure of inside knowledge about commodity derivatives trading to prevent market abuse.

ESMA’s initial proposals could have meant that a Freight Forward Agreements (FFA) trader with private information related to a commodity to be shipped could have been found to be in breach of disclosure regulations.

But London’s Baltic Exchange, the hub of global shipping which also owns the central FFA platform called Baltex, had argued there was no reliable correlation between specific types of information and prices.

“Because of the broad extent and diversity of shipping there is almost no limit to the number of different pieces of information that can affect physical shipping rates on a day to day basis and, by extension, have an effect on prices of freight derivatives,” the Baltic said.

“As ESMA is aware, this includes information about the supply or demand for ships, the supply or demand for cargoes … and information pertaining to ‘conditions affecting the transport of goods'”.

The Baltic said none of this was information was “expected or required to be disclosed in accordance with market rules, custom or practice”.

In its report ESMA said it took into account the market opposition and therefore was no longer proposing “any specific guidelines on the information relating to ‘goods’ subject to the freight contract nor on their conditions of carriage”. ESMA did not respond to requests for further comment.

The development comes after Baltic shareholders on Sept. 26 approved an 87 million-pound ($108 million) takeover by Singapore Exchange.

“The multiple regulatory interventions of recent years have cast a shadow over the development of the freight derivatives market,” Baltic’s chief executive, Jeremy Penn, told Reuters.

“At least in terms of the market abuse regulation, common sense has now prevailed and traders can be confident in using FFAs.”

SGX says it sees the potential to develop new freight derivatives centred on active Asian shipping routes and expand the use of freight derivatives with its acquisition of the Baltic. ($1 = 0.8042 pounds) (Editing by Greg Mahlich)

(c) Copyright Thomson Reuters 2016.

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