Nasdaq launches spot gold futures

Nasdaq, for the first time, will be launching spot gold futures. Beginning yesterday, Nasdaq has launched futures contracts on gold that are settled with cash rather than the delivery of physical gold.

By Telis Demos in New York
February 8, 2012 7:10 pm
Financial Times

Nasdaq OMX, the global exchange group, is branching out into US commodities trading with the launch of spot gold futures.

In a partnership with IKON Global Markets, a commodity trading merchant, Nasdaq yesterday launched futures contracts on gold that are settled with cash rather than the delivery of physical gold.

Gold has seen a surge in investor interest amid substantial market volatility, as well as fears that expansionary monetary policy by central banks will lead to future inflation. The price of gold, which hit nominal records last year, has been highly volatile in recent months.

At present, gold is primarily traded via forward agreements or spot physical markets in London dominated by large banks. Most small investors trade gold via exchange-traded funds in the US.

Nasdaq’s contracts aim to simulate spot trading for individual traders. The contracts, which have one expiration per year, currently December 2012, will reference physical spot gold prices.

To have the cash settlement match the cost of holding gold, the holder of the future will be required to pay a daily cost of storing the gold to the dealer, an amount to be calculated by Ikon.

The contracts will be centrally cleared via the Options Clearing Corporation, in order to meet Dodd Frank act requirements that standardised derivatives be cleared via a central counterparty.

”By combining the components of a futures contract with the integrity of the OTC spot gold market, this is a natural progression of the customer protections and transparencies dictated by that legislation,” said Diwakar Jagannath, IKON chief executive.

There are gold futures listed on the NYSE Liffe US and CME Group markets. The listed Liffe US futures have some 1,600 contracts in open interest and the CMEs have about 435,000, which is relatively small by CME’s standards.

CME so far in 2012 has traded 227,000 gold contracts daily, in futures as well as over-the-counter contracts via ClearPort, a fraction of its 12m average daily futures trades.

The main Liffe US and CME futures trade in 100 troy ounce units, while Nasdaq’s contracts can be agreed with as few as 10 ounces.

Nasdaq, which operates primarily in the US and the Nordic countries via OMX, has had little exposure to futures or commodities. It acquired an energy trading market in the Nordic countries in 2010.

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