NZX and SGX have signed an agreement to take effect in the second half of this year, subject to regulatory approvals.
NZX would delist its eight dairy derivatives and they would be relisted in Singapore.
The changeover would scale up market distribution and liquidity in the global dairy derivatives markets, according to an announcement by the two exchanges.
A trading participant on both exchanges, New Zealander Jason Bray, who is head of dairy in Asia for StoneX Financial, says the essence of the futures contracts as a risk management tool would not be changing, just how they are administered.
“At StoneX, we believe that every investor must have access to the widest array of markets, asset classes and liquidity,” Bray said.
“Subject to different trading hours and a pricing structure to reflect the contract’s new home, we expect this partnership will enable connectivity for more trading participants and deepen market liquidity, benefiting the market as a whole.”
The Singapore exchange had an excellent reputation as an Asian financial hub, nestled in a stable political environment and economy.
“Essentially this change would be the contracts moving to where they are most suited for future growth,” he said.
“To put this into a slightly different context, New Zealand processors exported nearly 1.6 million tonnes of whole milk powder in the previous 12 months, with 58% destined for South-East Asia and China.
“This highlights the importance of the greater Asia area on physical trade growth, hence it makes sense to have a South-East Asian entity play an essential part in the growth of the derivatives market also.”
“The NZX has done an amazing job in establishing successful dairy derivative contracts over the past decade, especially given not all futures market launches reach the liquidity thresholds they need to be considered a success by industry.
“Market growth from here on needs to be supported by more trading participants and these could be found already affiliated with SGX.”
NZX would continue to provide dairy product development expertise, market research and product support, chief executive Mark Peterson says.
“We see huge opportunity through this partnership to unlock potential and propel the future growth of our dairy derivatives suite,” Petersen said.
“By working together, we can leverage SGX’s global market connectivity, strong Asian presence and international distribution, to scale growth and liquidity in the trading of dairy derivatives.”
SGX chief executive Loh Boon Chye says Asia had the world’s largest bloc of dairy consumers and producers.
“This partnership brings a world-class suite of dairy derivatives benchmarks and risk management tools to dairy participants and investors in Asia and beyond,” Chye said.
NZX currently has futures markets in whole milk powder, skim milk powder, butter, anhydrous milk fat and milk prices, and it has options markets in the two milk powders and milk prices.
