NZX
13/05/2016 14:32
GENERAL
NOT PRICE SENSITIVE
REL: 1432 HRS NZX Limited
GENERAL: NZX: Launch date for NZ milk price futures and options
NZX is pleased to announce that the launch of milk price futures contracts
will occur on 27 May 2016. The launch of the related milk price options
contracts will be announced in June following the futures contracts launch.
These contracts are designed to address growing demand from producers and
purchasers of milk products wishing to manage risk relating to price
fluctuations. For example, both contracts can help New Zealand dairy farmers
to mitigate the financial risks associated with a variable milk price.
The path to launch has included consultation with a range of dairy industry
participants and NZX Derivatives Market stakeholders, as well as formal
approval of the contracts by the Financial Markets Authority and the Reserve
Bank of New Zealand.
NZX Head of Markets Mark Peterson commented: "We are committed to building
markets for the long term, and the launch of milk price futures and options
contracts is no exception. We will continue to focus our efforts on growing
market participation and trading activity, and educating interested parties
on the benefits of commodity risk management tools."
"As expected with new derivatives products, we expect that liquidity in the
market will build slowly at first."
"With 95% of their product sold overseas, New Zealand dairy farmers are
highly exposed to the global dairy market. The new futures and options
contracts will help to level the playing field with their overseas
counterparts in the US or Europe, who have access to a wide range of risk
management tools."
Once the futures and options contracts are available for trading on NZX's
dairy derivatives market, all users of these contracts will be required to
trade through an NZX Derivatives Participant (a broker). To view a list of
accredited NZX Derivatives Participants, please visit:
www.nzxfutures.com/access
Derivatives contracts carry risk and operate differently to fixed price
schemes offered by milk processors. NZX encourages parties wanting to enter
into these contracts to seek advice from an authorised financial adviser as
to whether derivatives contracts are appropriate for their individual
circumstances.
To view the final contract specifications, learn more about NZX's Derivatives
Market and download an introductory guide to milk price futures and options
contracts, please visit: nzx.com/derivatives
Quote vendor codes, exchange fees, starting prices, the final margin circular
and all other details pertaining to the first trading day will be released to
the market in the coming days.
NZX and participating brokers will be holding educational seminars throughout
the NZ National Agricultural Fieldays to be held 15-18 June 2016. To receive
updates on the seminars, please register here: nzx.com/derivatives
For further information please contact:
Kate McLaughlin
Head of Communications
T: 09 309 3654
M: 027 533 4529
E: [email protected]
About NZX Limited
NZX builds and operates capital, risk and commodity markets and the
infrastructure required to support them. We provide high quality information,
data and tools to support business decision making. We aim to make a
meaningful difference to wealth creation for our shareholders and the
individuals, businesses and economies in the countries in which we operate.
To learn more about NZX, please visit: www.nzxgroup.com
Frequently asked question
What are futures and options contracts?
A futures contract is an agreement, generally made through an exchange, to
buy or sell a commodity or asset at a date in the future, and at a price
agreed today.
When futures contracts mature, they can be settled by buyers and sellers
either exchanging the commodity or asset, or by settling in cash whereby the
contracting parties pay or receive a loss or gain (calculated by reference to
the settlement price).
In the case of NZ milk price futures, the buyers and sellers will settle by
exchanging cash, calculated by reference to Fonterra's announced Farmgate
Milk Price.
Options contracts provide the purchaser with the right, but not the
obligation, to buy or sell a particular asset or commodity at a
pre-determined price, on an agreed date in the future. For example, a dairy
farmer may use an options contract to protect against the milk price falling
but retain the benefit of potentially higher milk prices.
How do futures or options contracts differ from fixed price schemes offered
by milk processors?
Fixed milk price schemes generally allow parties to lock in a price for a
percentage of their milk production. NZX's futures and options contracts
operate very differently. Trading parties buy and sell futures contracts to
hedge their exposure to movements in the milk price. For example, if the
Farmgate Milk Price declines, the drop in the price a farmer receives from a
processor for milk supplied will be offset by a gain on the futures contract.
Parties that trade futures contracts are also subject to obligations relating
to holding a margin account, as well as 'basis risk' (where the futures
contract price differs from the underlying physical market price).
How can I learn more about the futures or options contract specifications?
Contract specifications and an introductory guide to the products are
available to view and download from: nzx.com/derivatives
NZX and participating brokers will be holding educational seminars throughout
the NZ National Agricultural Fieldays to be held 15-18 June 2016. You can
also register your interest with NZX to receive updates on the seminars by
clicking the link above.
Why does the NZ milk price futures contract settle to Fonterra's announced
Farmgate Milk Price?
When cash settling futures contracts, the reference price for settlement
should be a recognised benchmark on which the majority of the industry either
directly depends on or has a link to.
NZX reviewed alternative reference prices and consulted with expected trading
parties and industry participants. Fonterra's Farmgate Milk Price best
fulfilled the requirements for a reference price used to settle futures from
a benchmark and governance perspective.
NZX considers that the governance arrangements that apply to the calculation
of Fonterra's Farmgate Milk Price (including oversight by the Commerce
Commission) are adequate to ensure the integrity of the new contracts.
To learn more about how Fonterra calculates the Farmgate Milk Price, visit:
http://www2.fonterra.com/our-financials/milk-price-methodology
When is the last trading day and the final settlement date?
The last trading day each year will be the second Thursday of September and
the NZ milk price futures contracts will settle on or about 1 October (being
the business day after the date by which Fonterra is required to announce its
final Farmgate Milk Price). The same timetable will apply to NZ milk price
options.
Trading of NZ milk price futures and options is expected to decrease towards
the end of the season as the milk price becomes more certain. Setting the
final trading day in early September provides an opportunity for market
participants to exit positions up until several weeks prior to Fonterra
announcing its final Farmgate Milk Price.
How can I trade?
All parties must trade through an NZX Derivatives Participant (a broker). To
view a list of accredited NZX Derivatives Participants, please visit:
www.nzxfutures.com/access
End CA:00282371 For:NZX Type:GENERAL Time:2016-05-13 14:32:52
