SAFEX inward listed commodities
SAFEX now lists WTI, Gold and Platinum futures, allowing individual and institutional investors access to the energy and precious metals complex. Finally, investors can hedge their risks, add enhanced financial engineering to their commodity stock portfolios, combine various equity and commodity positions, and participate in the price appreciation of South Africa’s flagship commodities.Important for the investor, settlement in rands means that the currency risk is removed and that the contracts will perform according to local conditions e.g. the WTI crude contract is a good proxy for the South African Basic Fuel Price. Risk is further decreased by removing the physical settlement requirement of the overseas contracts while still enjoying the same underlying commodity exposure. The SAFEX contracts are also smaller than their overseas counterparts allowing smaller consumers the ability to access the market. Larger consumers can trade in bigger volumes or go direct to market makers such as RMB for more tailored hedging solutions.
South African investors can now have access to many of the same commodity products enjoyed by investors in other countries.
WTI
The CME group extended its licence to the JSE to quote NYMEX WTI physically settled crude on 24 August 2009. SAFEX now lists a WTI ZAR priced and settled contract, which is one-tenth the size of the main NYMEX WTI contract. WTI futures (Feb, Jun, Aug and Dec) are listed on SAFEX and include the corresponding ZAR forward points, which translates in a ZAR/barrel price.WTI (West Texas Intermediate) crude is the most actively traded energy complex commodity in the world. Brent (or more correctly, BFO) is a North Sea crude whereas WTI is from the Gulf of Mexico. WTI remains the main pricing benchmark for most other crudes.
Gold
The CME group extended its licence to the JSE to quote COMEX physically settled gold on 24 August 2009. SAFEX now lists a financially settled ZAR priced gold contract. Gold futures (Jan. Apr, Jul and Oct) are listed on SAFEX and include the corresponding ZAR forward points which translate into a ZAR/ounce price.Gold is seen as an inflation hedge and safe haven investment in volatile times. Gold delivery is made in COMEX approved warehouses around the world but this typically involves a location price differential.
Gold is traded in the interbank market as a currency pair (XAU/USD) and exhibits a close correlation with interest rate differentials and central bank gold lease rates.
Platinum
The CME group extended its licence to the JSE to quote COMEX physically settled platinum on 24 August 2009. SAFEX now lists a financially settled ZAR priced platinum contract. Platinum futures (Jan, Apr, Jul and Oct) are listed on SAFEX, including the corresponding ZAR forward points, which translates into a ZAR/ounce price.Although platinum is also seen as an inflation hedge and safe-haven investment, it is more of an industrial metal than gold. Platinum delivery is made in COMEX approved warehouses around the world. As 80% of the world’s platinum production is sourced in South Africa, the contract will give investors direct access to a major source of South Africa’s GDP.
Forward Exchange Rate Price Determination
The number of forward points on a given exchange rate will be determined by the prevailing interest rate in each market and the time between the spot and forward rates.For example:
- USD/ZAR spot: 7.36
- Expiry: 30/04/2010
- 1-year rate USD: 1.21%
- 1-year rate ZAR: 8.2%
- Number of days: 204
Contract specifications
Crude:
Bloomberg: CL Cmdty
Reuters: O#WTIO
Trading hours: 09:00 – 15:45
Contract months: February, June, August and December.
One contract is 100 barrels (15898.73 litres) of WTI light sweet crude oil (NYMEX = 1,000 barrels).
Smallest price movement: 20 ZAR c/contract.
Settlement: Cash settled in South African Rand.
Final cash settlement value:
- Crude: The NYMEX settlement value will refer to an average of 15 iterations referencing trades in the underlying derivative contract, taken every 1 minute for a period of 15 minutes ending 10h00 New York time (SA Summer: 16h46 – 17h00 and SA Winter: 15h46 – 16h00) on the penultimate trading day of the NYMEX delivery month.
- ZAR: 30 iterations, arithmetic average of the underlying spot taken every 1 minute for a period of 30minutes, ending at 10h00 New York time (SA Summer: 16h31 – 17h00, SA Winter: 15h31 – 16h00)
- Expiry: Crude oil will cease trading at the close of business (15h45, SA time)) on the fourth US business day prior to the 25th calendar day of the month preceding the expiry month.
Gold:
Bloomberg: GOLDS Cmdtv
Reuters: o#GOL
Trading hours: 09:00 – 15:45
Contract months: January, April, July and October.
One contract is equal to 10 troy ounces (312.50kg).
Smallest price movement: ZAR R1/contract.
Settlement: Cash settled in South African Rand.
Final Cash settlement value:- Gold: average of 30 iterations, referencing trades in the underlying contract, taken every 1 minute ending 10h00 a period of 30 minutes. (SA Summer: 16h31 – 17h00, SA Winter: 15h31 – 16h00)
- ZAR: 30 iterations, arithmetic average of the underlying spot taken every 1 minute for a period of 30minutes, ending at 10h00 New York time (SA Summer: 16h31 – 17h00, SA Winter: 15h31 – 16h00)
- Expiry: Gold futures will cease trading on the second last business day preceding the first delivery day of the COMEX contract at 15h45 SA time.
Platinum:
Trading hours: 09:00 – 15:45
Contract months: April, June, August and December.
One contract is equal to 10 troy ounces (312.50kg).
Smallest price movement: ZAR R1/contract.
Settlement: Cash settled in South African Rand.
Final Cash settlement value:
- Platinum: average of 30 iterations, referencing trades in the underlying contract, taken every 1 minute ending for a period of 30 minutes. (SA Summer: 16h31 – 17h00, SA Winter: 15h31 – 16h00)
- ZAR: 30 iterations, arithmetic average of the underlying spot taken every 1 minute for a period of 30minutes, ending at 10h00 New York time (SA Summer: 16h31 – 17h00, SA Winter: 15h31 – 16h00)
- Expiry: Platinum futures will cease trading on the second last business day preceding the first delivery day of the NYMEX contract at 15h45 (SA time)
Margin Requirements
| Contract code | Expiry date | Initial margin | Spread margin |
| Crude oil (WTIO) | Spot Month | R5,700/contract | R1,700/contract |
| Crude oil (WTIO) | Following Month | R5,800/contract | R1,700/contract |
| Gold (GOLD) | Spot Month | R4,300/contract | R1,300/contract |
| Gold (GOLD) | Following Month | R4,400/contract | R1,300/contract |
| Platinum (PLAT) | Spot Month | R7,600/contract | R2,300/contract |
| Platinum (PLAT) | Following Month | R7,800/contract | R1,300/contract |
For crude the initial margin is around 10% of the contract nominal value whereas for gold and platinum the initial margin represents around 5%.
* JSE can amend requirements at their discretion.
Getting started
Current institutional investors with RMB Morgan Stanley should sign an amendment letter. RMB Morgan Stanley will then execute on the client’s behalf with trades allocated to the client’s account. Please contact Nadia Redelinghuys on 011 269 9981 (nadia.redelinghuys@rmb.co.za) for any queries or to open an institutional investor account.Current or prospective RMB clients who would like to participate in commodity futures can contact Jeremy Fox or Deon Kholmeyer on Bloomberg or 011 269 9040 or Penny George on Bloomberg or 021 658 9375 (jeremy.fox@rmb.co.za / deon.kholmeyer@rmb.co.za /penny.george@rmb.co.za) for further information. Prime Broking clients can phone through and request commodity futures be added to their account. Please contact Ryan Proudfoot on 011 269 9669 (ryan.proudfoot@rmb.co.za) for any queries or for information on opening a new trading account with Prime Broking.
Andrew Connellan on the RMB Commodities desk can also be reached directly on 011 269 9820 for market information or for any further queries.