NZX Initiates Dairy Futures and Options Contracts

The NZX is introducing new dairy futures and options contracts this May.

The New Zealand Exchange (NZX) has received approval from the country’s Financial Markets Authority (FMA) and the Reserve Bank of New Zealand to implement and offer its proposed milk price futures and options contracts, which are slated for launch next month, according to an NZX statement.

The NZX represents NZ’s largest capital markets issuer and listing entity, with its latest futures and options contracts designed to tap into one of the largest components of the antipodean economy. The release of the new instruments comes on the heels of a growing demand from producers and purchasers of milk products aiming to better grapple with and manage price fluctuations and volatility.

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Both the futures and options contracts will officially launch in May 2016 – the contracts will also be available on NZX’s comprehensive derivatives market, thus necessitating all parties to go through a registered derivatives participant. Overall, the initiative is important for NZ market participants as it fosters risk management in one of the country’s biggest industries. Moreover, an inherent vulnerability to offshore factors helps NZ dairy farmers gain some control over pricing and options.

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According to NZX’s Head of Markets Mark Peterson in a recent statement on the options: “This is an important milestone in the development of commodity risk management tools needed to support New Zealand’s agricultural sector. It was also identified as a project in the Government’s Business Growth Agenda which seeks to explore how risk management tools such as derivatives could address volatility in agricultural commodity prices.”

“With 95% of their product sold overseas, New Zealand dairy farmers are highly exposed to the global dairy market. They have few tools available to help them manage milk price risk which leaves farmers at a disadvantage to their overseas counterparts in the US or Europe, who have access to a wide range of risk management tools,” he added.

NZX made headlines earlier this week after it released its monthly shareholder metrics for March 2016, which again saw its business and cash equities trading grow MoM. The latest figures yielded total trades of 167,070, constituting a boost of 12.1% MoM from 149,073 trades in February 2016, a departure from many other global institutional venues during the month.

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