Singapore Exchange looks to bolster faltering gold contract

The Singapore Exchange (SGX) is looking to boost liquidity of its faltering gold contract by extending trading hours and allowing jewellers and refiners to participate, an official said on Monday.

The bourse launched a 25-kg wholesale gold contract in October 2014 with an aim to create a regional benchmark, but the contract has failed to attract volumes, with November recording zero activity.

SGX's gold contract could face a tough time gathering momentum as it is competing in an increasingly fragmented Asian gold market, where CME Group, Intercontinental Exchange and the Shanghai Gold Exchange have all launched new products over the last 15 months.

Australia's ASX Ltd is jointly developing a contract with the Perth Mint that will begin trading next year.

Asia, the top gold consuming region, has seen several gold contracts launched since late 2014 as the region clamours to gain pricing power over the metal and challenge the dominance of London and New York in trading. But they have all seen limited participation.

In an effort to boost volumes, the SGX will extend trading hours from the current three hours to six and a half hours, and remove the need for gold delivery agents. Sellers would also be allowed to transfer their position if they are unable to meet physical delivery obligations.

"These are the first set of changes as we look to build out the contract. We want the wholesale market to confidently rely on us as a regional benchmark," said William Chin, vice president of commodities at SGX.

With regulatory approval in hand, the changes will be effective from this week, but the official re-launch of the contract will be in January, he said.

The most active the SGX gold contract has ever been was on the month of the launch when 56 lots were traded. Since August this year, only three or less lots changed hands, with November recording no trade at all, according to bourse data.

SGX is also looking to change the mix of market participants, by allowing jewellers and refiners to trade the contract directly. Only banks can participate now.

"We are talking to that segment of the market. They have said they are interested," Chin said, adding the exchange has had discussions with big jewellers in Thailand and Hong Kong, the gateway to top consumer, China.

Having jewellers trade the gold could boost volumes as Singapore is the hub for physical trade in the Southeast Asian region.

Chin said SGX has no immediate plans to reduce the size of the contract to make it appealing for retail investors, but the bourse will consider the possibility if the need arises.