Group Inc.s planned physically delivered aluminum
contract will rely on getting the specification right and
driving liquidity for the contract, managing director of metals
products Harriet Hunnable told AMM sister publication
"The CME is very good
at driving liquidity around new markets. Weve already
brought in liquidity around iron ore contracts and around
small, 1,000-ounce silver contracts," she said.
"We will make sure we
have investments to bring it through (on aluminum). The key
thing is getting the contract specs right and the warehousing
The group is working
to ensure the associated warehousing structure is robust and
"well-understood" before launching the contract, Hunnable
have specifically requested the implementation of such a
contract, she added, as the exchange has "experience and
expertise" in setting up warehousing, creating liquidity and
providing clearing services.
on) increased transparency and good price discovery, liquidity
and facilities for the over-the-counter market," Hunnable
market in Asia, and now the market in Europe and the U.S.,
understands futures and is keen to have a CME aluminum futures
In terms of the
specification for the contract, CME Group "wont make it
too difficult" for traders to create an arbitrage with the
London Metal Exchange, she said.
"I cant give
exact details about it yet, but we will make it so that people
can trade it if they want to (set up) an arbitrage with the
LME. Theres an opportunity for the market to evolve and
grow," she said.
"We can take it to the
next stage, and (to do that) it needs greater liquidity and
transparency. Physical and financial players would like to see
a contract at CME Group."
Futures contracts are
much more efficient than forward contracts and uncleared swaps
in terms of managing and trading on markets, she added.
"I think the new
environment for accounting for derivatives and the requirements
around segregated accounts and the treatment of forwards make
futures much more cost effective," Hunnable said.
"We have experience in
setting up vaulting for precious metals and warehousing for
copper, and we will be using our expertise to inform us on
whats the best way to set this up for aluminum."
CME Group is
consulting with the industry to make sure the new contract will
be "fit for purpose," she said.
to everybody along the supply chain and weve had
tremendous support. We think change is going to happen and we
want to be part of that," Hunnable said.
"Theres only one liquid contract trading and that will
become more expensive under the EMIR (European Market
Infrastructure Regulation) regime. We need change."
A version of this article was first
published in AMM sister publication Metal