Business Daily from THE HINDU group of publications
Saturday, Nov 11, 2006
ePaper
Business Daily from THE HINDU group of publications Saturday, Nov 11, 2006 ePaper |
|
|
|
|
|
|
|
Agri-Biz & Commodities
-
Commodity Exchanges Paradigm shift in global derivatives market Gargi Shah
Mumbai , Nov. 10 A paradigm shift in the global derivatives exchange fraternity is evident from the recent trend of consolidation and cross-border partnership. What's driving the change? Why are seemingly well-established exchanges seeking to transform themselves? The derivatives industry dynamics that spawn the new trend point to two main factors. First, recent transformation of the exchanges' status from being a not-for-profit mutual body to professionally managed de-mutualised public entity. Second, adoption of technology in lieu of traditional trading practices such as open outcry and manual settlement procedures, according to experts.
Economics
Technology adoption, in particular, results in operational efficiency and upscaling possibility. Exchange economics are based on fixed costs. Infusion of technology and consolidation help merger of two entities into one and effect cost savings in terms of human resources, real estate and even technology itself, among others. As opposed to limited value addition in traditional pit trading system, technology allows future incremental product addition at nearly negligible costs. Tremendous efficiency potential is unveiled as a result of such value addition (launching new products) through minimisation of additional costs and maximisation of profits. The flip side could, however, be potential loss of flexibility in operations. Consolidation enables enhancement of value proposition from deriving benefits through leverage and economies of scale, said a senior US exchange official, adding that each model ought to have a unique business driver.
Unrelated products
Realignment of forces among the global exchanges will allow better product innovation within the area of specialisation. But this proposition may not hold good all the time. There may be occasions when two exchanges dealing in unrelated derivative products may still find interest in alignment. Cross-border JVs have become possible owing to technological advancement. An example of such marriage is of Joint Asian Derivatives Exchange (JADE) and Dubai Gold and Commodities Exchange (DGCX). This allows local exchanges to ride on a global platform while allowing international players to spread the cost of trading platform across borders. Asian exchanges are now much sought-after entities as new strategic partners. While some of the eastern economies are already open, some are in the process of opening up. Economies such as Singapore, Taiwan, and South Korea are most viable; while the Indian and the Chineseare somewhat restricted economies. From a foreign perspective, expanding customer base and developing innovative products for different regional customers are important areas of growth where the international exchanges are looking to grow. Potential of the eastern markets is now recognised by the developed economies that are looking for equal partnerships. Likewise, markets such as South Korea, Singapore, and India are looking for alliances globally. Among various forms of alliances even Greenfield projects are observed to be viable, according to an Asian exchange official.
More Stories on : Commodity Exchanges | Derivatives Markets | Commodities
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | The Hindu ePaper | Business Line | Business Line ePaper | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2006, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|