Wool forward trading regulated

Wool forward trading regulated


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WOOL forward trading has undergone a reform, as the industry jumps on the front foot to global pressure to regulate practices in over-the-counter (OTC) derivative market.

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Riemann Agriculture has launched a new wool forward trading platform which is now a financial product regulated by ASIC.

Riemann Agriculture has launched a new wool forward trading platform which is now a financial product regulated by ASIC.

WOOL forward trading has undergone a reform, as the industry jumps on the front foot to global pressure to regulate practices in over-the-counter (OTC) derivative market. 

The country’s wool forward trading has been overhauled with Riemann Wool launching a new forward trading platform which is a financial product regulated by Australian Securities and Investments Commission. 

It is one of a suite of Agricultural financial risk management products across multiple commodity markets Riemann have launched, including lamb and cattle forwards, on the back of high prices for Australian livestock. 

The new service offers a hedging and trading platform for Australian wool, including option contracts, which are cash settled against the Australian Wool Exchange and removes deliverable contracts option. 

Ag Concepts, Southern Aurora Wool and Advance Trading Australasia have signed as Broker Participants to the licensed financial trading platform, Mercari Exchange, operating independently as approved brokers trading Riemann Wool OTC forwards and OTC options.

The electronic platform is a trading ground between woolgrowers or brokers and exporters, where users put in their bids or offers and have them matched on screen in real time for trades up to three wool clips. 

The idea is growers and brokers can risk mitigate by shoring returns, while exporters, or buyers, can secure future supply, at a chosen price. 

Prices are based against the AWEX Micron Price Guides (MPGs). These are published at the end of each auction sale day and represent the price paid that day for the particular micron group.

A grower can choose a MPG that best mirrors their production, a maturity that matches their likely auction sale and manage their forward risk according.

As maturity nears the grower assigns his wool via his broker to sell on that date.

Southern Aurora Wool Mike Avery said the grower achieves maximum competition and value for his clip on the day and his hedge is settled against the relevant MPG, with proceeds added or deducted from the account sale.

“We want to see liquidity focused in one point and price transparency in general,” Southern Aurora Wool Mike Avery said.

“It’ll remove the market fragmentation and have the volume concentrated in one place.” 

Riemann Agriculture’s Scott Still said significant regulatory and financial market structures pressure to create a more accessible and comprehensive market place for the trading of agricultural financial products lead to the changes. 

“This financial product environment provides participants with more certainty and less counterparty risk with the added benefit of regulatory oversight,” Mr Still said.

The former contract facilitated physical delivery, whereas the new financial products are cash settled only. 

It is one of a raft of changes being pursued by the industry to modernise the 100 year-old open cry auction system. 

This includes the investigation of a Wool Exchange Portal by Australian Wool Innovation which is anticipated to be an amalgamation of prices for physical wool sold at auction, either via AWEX or Auctions Plus. 

“It facilitates and reports physical transaction in the cash market, (whereas) Riemann wool is a forward, financial marketplace with the requisite compliance and controls enforced by the regulator,” Mr Still said. 

Southern Aurora Wool’s Garry Booth said the contracts were now considered financial assets by banks and regulators, and as such will encourage fresh participation from banks, funds, woolgrowers, exporters and processors.

“… As these contracts are considered assets and not liabilities, and will put growers and others in a stronger bargaining position when negotiating better funding terms with their Bank or financial intermediary,” Mr Booth said.​ 

The story Wool forward trading regulated first appeared on Queensland Country Life.

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