FT reported that two of the London’s oldest financial institutions are at loggerheads over the future of the USD 155 billion global freight derivatives market.

The London Metal Exchange has held exploratory discussions with participants in the freight derivatives market in an attempt to attract their business on to the LME’s trading platform.

The London Metal Exchange has claimed that it is the natural venue for Forward Freight Agreements, the contracts that allow parties to hedge the risks associated with shipping freight, after holding exploratory discussions with leading freight derivatives traders as part of a plan to attract their business on to the LME’s trading platform.

Mr Martin Abbott CEO of LME said that "If FFAs were trading on a transparent exchange with all the regulatory benefits, then the market would benefit from increased liquidity and efficiency."

But its move has received a frosty reception from the Baltic Exchange, the organization that provides the benchmark indices used to price and settle FFAs.

Mr Jeremy Penn CEO of Baltic Exchange said that "We are not in discussion with the London Metal Exchange regarding the potential for screen trading in the FFA market, although we understand that they have held discussions with some of our members. We will not offer our support for changes in the marketplace which potentially threaten the existing and sometimes fragile FFA liquidity."

(Sourced from Financial Times)