The non-binding agreement signed between both exchanges will explore the listing of NZX’s suite of dairy derivatives contracts on SGX’s trading and clearing platforms.
This would see NZX bring its dairy product development expertise and client relationships, while leveraging SGX’s global market connectivity, strong Asian presence and international distribution, to scale growth and liquidity in the trading of dairy derivatives. Market participants could expect augmented access via current and new trading and clearing channels.
NZX launched its dairy derivatives market in 2010, enabling market participants across the dairy production chain – from farmers through to international manufacturers of dairy products – to manage price risks inherent within global dairy markets.
Over the past 10 years, NZX has grown the contract suite to include eight futures and options contracts across dairy ingredients including whole milk powder (WMP), skim milk powder (SMP), butter (BTR) and anhydrous milk fat (AMF) as well as liquid NZ milk price (MKP) contracts. NZX has five member firms connected to the market and two independent software providers (ISVs).
Loh Boon Chye, CEO of SGX, said, “Our partnership with NZX demonstrates that exchanges can collaborate for mutual benefit and the betterment of the wider industry. With its rising population and changing demographics, Asia will remain one of the largest consumers and importers of New Zealand’s dairy products. We believe our successful commodities derivatives franchise, with its established infrastructure and ecosystem, coupled with our global distribution network and strong Asian footprint, will enable us to work with NZX to fuel growth in the dairy derivatives market.”
Mark Peterson, chief executive of NZX, said a partnership with SGX would be an example of commercializing NZX’s international alliance strategy and would propel future growth of the dairy derivatives suite.
The partnership builds on the Memorandum of Understanding signed between the two exchanges in 2018, to expand cooperation in the Asia-Pacific region and promote market development initiatives across multiple product sectors.
“This opportunity offers a further acceleration in liquidity for our global dairy derivatives contracts by harnessing greater access via SGX’s global network of trading and clearing firms, while leveraging NZX’s dairy market expertise, insight and ongoing marketing and sales in a franchise that has been built from the ground up,” Peterson said.
James Miller, chair of NZX, said NZX’s strategy refresh in 2017 identified the importance of developing greater breadth of distribution and trading functionality.
“Through a global partnership with a large international exchange such as SGX, there is opportunity to unlock and accelerate growth in liquidity and market scale. As the world’s largest exporter of dairy products, New Zealand is an integral part of the global dairy market. The intention of the partnership is to benefit all participants and put the New Zealand dairy industry on an equal footing with their global counterparts in their ability to manage risk,” Miller said.
Over the coming months, NZX and SGX will consult with their respective market participants and stakeholders, and seek regulatory approvals related to the proposed global partnership. Should this process be successful, the partnership is expected to be confirmed in the first half of 2021.