Trading the new BDIFutures contract Mikal Boe Imarex Asia Pte Ltd Wednesday 18th June 2008
fast growing commodity exchange World s only regulated market for freight swaps, futures and options Hybrid exchange model with Brokers, E-Trading (Exchange) and Clearing Founded 2000 IPO 2005 (OSE: IMAREX) market cap appr NOK 2 Billion 15% owned by NYMEX Holdings (acquired Oct 2007), 295 employees worldwide Commodites worth US$200 billion traded via IMAREX Group in 2007 Over US$10 billion in freigth traded electronically on IMAREX screen in 2007 Global dry bulk and tanker freight futures and options (15% / 50% market share)
Imarex Group services and markets The Group serves its members and clients around the world working in four main operational sectors of the commodity markets. Regulated exchanges and electronic trading platforms Derivatives clearing and settlement Derivatives and physical commodity brokerage Commercial market research and analyses services IMAREX Group operates across the four operational sectors in the following markets: Dry bulk and tanker freight derivatives UK, Nordic and European energy derivatives European and US emissions derivatives Physical UK, European and US natural gas markets Crude oil and middle distillates derivatives Nordic salmon and seafood derivatives London Metals Exchange derivatives Weather derivatives Physical coal Nuclear fuels Trade via direct membership or via general Clearing Members
Who Trades at Imarex? Global client base for NOS Clearing and IMAREX All the main commodity traders are present 200 CLEARING members in Q2 2008
Electronic trading on the IMAREX screen The IMAREX trading screen is the ONLY successfully liquid trading screen in the freight derivatives market Screen activity: 5000 transactions / quarter 100 000 lots / quarter USD 5 Billion + /quarter Members trade DIRECT on screen or via IMAREX brokers in Oslo, Houston, London and Singapore ALL prices are FIRM and therefore transparent Clearing affords complete anonymity to traders when trading on screen Screen is open 24 Hrs per day
The Dry Bulk FFA market in 2008 $125 billion notional value expected in 2008 2 million lots traded 2007 Priced in US dollars per day (equivalent to time charters) Trades differently than tankers Contracts are in # of days, not in Worldscale Fewer trades, though larger notional values Price discovery can be choppy Market heavily dependent on handful of voice brokers
The growth of clearing for Dry Bulk FFAs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% OTC Cleared 2002 2003 2004 2005 2006 2007 2008e 2009e 2010e 2002-2007 sees growth in clearing from 1% to 30% Liquidity still low with relatively few but very large contracts traded every day Clearing has brought more new market participants, but still very shipping focused Clearing is primarily OTC clearing Clearing should enable electronic trading, market now looking for a screen traded model Model for future development may come from the tanker FFA market where small contracts are traded frequently in large volumes.
A new tool for dry bulk investors Dry bulk shipping is booming The BRICs are forecast to continue driving commodity demand for up to 20 years How can you invest in this growth story? 1. BUY dry bulk shares on NYSE, NASDAQ. LSE and OSE 2. Trade FFAs 3. Trade Commodity related ETFs 4.... or Now BDIFutures, a new tool for dry bulk investors Simple index future on the main dry bulk indicator BDI Tradable electronically cleared at NOS Clearing or via clearing banks and brokers MINI contracts where 1 LOT = $1 per index point Trade on direction Trade as Hedge against dry bulk equities Trade as spread against FFAs LIVE on IMAREX screen 24hrs per day
Introducing the Baltic Dry IndexT A composite of global shipping costs for bulk commodities such as grains, ore and coal on 26 shipping routes for supramax, panamax and capesize vessels (BSI, BPI and BCI) Indices and BDI based on daily professional assessments from panel of international ship brokers Previously the Baltic Freight Index closed in 2001 BIFFEX traded as forward market on LIFFE BIFFEX failed as a hedging tool for physical shipping now using FFAs Most public dry bulk shares closely tied to movement in BDI (up to 93% correlation) BDI composition: 26 individual shipping routes Making up 4 separate sector indices Handysize, supramax, panamax and capesize vessels BHSI, BSI, BPI and BCI + Index multipliers
Physical routes making up the Baltic Indices C8 172000mt Gibraltar/Hamburg trans Atlantic RV 25% C9 172000mt Continent/Mediterranean trip Far East 25% C10 172000mt Pacific RV 25% C11 172000mt China/Japan trip Mediterranean/Cont 25% CS4TC P1A 74000mt Transatlantic RV 25% P2A 74000mt SKAW-GIB/FAR EAST 25% P3A 74000mt Japan-SK/Pacific/RV 25% P4 74000mt FAR EAST/NOPAC/SK-PASS 25% PM4TC S1A 54000 mt Antwerp - Skaw Trip Far East 25% S1B 54000 mt Canakkale Trip Far East 25% S2 54000 mt Japan - SK / NOPAC or Australia rv 12.5% S3 54000 mt Japan - SK Trip Gib - Skaw range 12.5% S4 54000 mt US Gulf - Skaw-Passero 12.5% S4B 54000 mt Skaw-Passero - US Gulf 12.5% HS1 28000mt Skaw / Passero - Recalada / Rio de Janeiro 12.5% HS2 28000mt Skaw / Passero - Boston / Galveston range. 12.5% HS3 28000mt Recalada / Rio de Janeiro -Skaw / Passero 12.5% HS4 28000mt US Gulf / NC South America - Skaw / Passero 12.5% HS5 28000mt SE Asia via Australia - Singapore / Japan 25% HS6 28000mt S Korea/Japan - Singapore/Japan range incl. China 25% SM6TC HM6TC
Other physical routes making up the Baltic indices C2 C3 C4 C5 C7 C12 160000mt Brazil (Tubarao) Rotterdam 150000mt Barzil (Tubarao) China 150000mt Richards Bay/Rotterdam 150000mt West Australia/China 150000mt Columbia/Rotterdam 150000mt Gladstone/Rotterdam Percentage contribution towards the BDI depends on each individual route s assessment. Approximate composition is as follows: CS4TC 23% PM4TC 29% SM6TC 17% HM6TC 9% C2-C7 & C12 22% TOTAL 100%
Challenges for dry bulk equity investors Physical dry bulk shipping is a fragmented and opaque market sector with a high degree of insider influence Price movements of Dry bulk shipping equities are closely tied to freight rates and the BDI Freight rates vary from ship to ship, ocean to ocean and from sector to sector no shipping share is 100% tied to one trade route at any time Experience of substantial equity losses caused by factors far outside their field of knowledge The FFA market has substantial volatility caused by unrelated insider influence and pure-paper market activity
Elegant solutions using Imarex BDIFutures BDIFutures is an Index futures contract based on BDI Using the BDIFutures contract, investors and stock portfolio managers can protect the value of the shipping equities from upside and downside price risk of the broader dry bulk market The Imarex BDIFutures contract can be traded in lots as small as $1 per point providing low barriers to entry 24hr electronic trading with very low transaction fee Imarex is world s only regulated market for freight derivatives
Imarex BDIFutures specifications Underlying: Baltic Exchange Dry Index TM (BDI) Lot Size: 1 lot = 1 USD x BDI tick (if index is 10,000 then 1 lot is USD 1 x 10,000 = USD 10,000) Minimum lot per trade: Maximum lot per trade: Settlement/Margins: Final settlement at maturity: 1 lot 999 lots Daily P+L and margins Average of BDI per month Final settlement day: Forward curve: Last day of each month 6 months, 4 quarters, annual Fees: Execution: Clearing: USD 8.00 pr lot incl. execution / clearing Directly on Imarex screen or via voice broker NOS Clearing ASA
BDIFutures for equity investors Ticker Name Exch. Share price 10/6 1 yr daily Since Feb 1 daily GOGL.OL Golden Ocean OSE 31.15 a) 88% 80% SBLK Star Bulk Carriers Corp NASDAQ 13.74 87% *** 93% DRYS Dryships Inc. NASDAQ 88.27 84% 73% DSX Diana Shipping Inc NYSE 33.08 82% 83% EGLE Eagle Bulk Shipping Inc NASDAQ 32.55 81% 92% GNK Genco Shipping & Trading Ltd NYSE 64.86 79% 85% EXM Excel Maritime Carriers Ltd NYSE 48.05 79% 84% TBSI TBS International Ltd NASDAQ 42.75 77% 84% PRGN Paragon Shipping Inc NASDAQ 19.56 77% ** 79% NM Navios Maritime Holdings Inc NYSE 10.82 62% 55% JIN.OL Jinhui Shipping OSE 57.75 a) 60% 75% NMM Navios Maritime Partners LP NYSE 15.09 34% * 15% FREE FreeSeas Inc. NASDAQ 6.48 26% 77% * NMM since 13 Nov 2007 ** PRGN since 10 Aug 2007 *** SBLK since 3 Dec 2007 a) in Norwegian Kroner NOK
Hedging LONG GOGL:NO position BUY 10,000 GOGL:NO at NOK 34 (NOK/USD=5.1) so USD 6.67 Notional stock value = NOK 340,000 (USD 66,667) IF BDI falls 5% in JULY GOGL could fall 4-7% or up to USD4666 SELL 6 lots BDIFut JUL08 at 11,000 = USD6 x 11,000 BDI falls 5% to 10,450 dragging GOGL:NO down 6% to USD 6.27 LOSS on equity position = USD4000 Profit on BDIFut JUL08 = 550 points @ USD6 = $3300 Total Profit/Loss = - US$700 (versus - USD4000 unhedged)
Hedging SHORT DRYS Position Sell 5,000 DRYS at $80/share Notional stock value = USD 400,000 IF BDI increase 5% in JULY DRYS could increase 4-7% or up to USD24,000 BUY 36 lots BDIFut JUL08 at 11,000 = USD 36 x 11,000 BDI increases 5% to 11,550 bringing DRYS up 6% to USD 84.80 LOSS on equity position = USD24,000 Profit on BDIFut JUL08 = 550 points @ USD36 = $19,800 Total Profit/Loss = - US$4,200 (versus USD24,000 unhedged)
Trading through Prime brokers and GCM s MF Global Matt Duggan +44 207 144 5390 Newedge Group Chris Bartlett +44 207 550 2207 Macquarie Bank Mark Fitzpatrick +44 203 037 4162 Deutsche Bank Henry Porter +44 207 545 5173 JPMorgan James H. Proudlock +44 207 777 3855 ABG Sundal Collier Erik Tynes +47 22 01 60 24 Carnegie Tor A. Svelland +47 22 00 93 91 Kaupthing Eljar Roland +47 24 14 74 68 DBS Vickers Roger Quek +65 6398 6066 Please contact the Imarex BDI-TEAM at any time for further contacts and contract information Sales and set up - Thomas Bertel +47 23 89 42 46 Broker BDI Desk - Mikkel M. Holmesland, +47 23 89 42 14
Trade BDIFutures at Imarex today www.imarex.com