imarex
TRANSCRIPT
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Creating Markets - the Imarex Group
Trading the
newBDIFu t u r e scontract
Mikal BoeImarex Asia Pte Ltd
Wednesday 18th June 2008
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Creating Markets - the Imarex Group
fast growing commodity exchange Worlds only regulated market for freight swaps, futures and options
Hybrid exchange model with Brokers, E-Trading (Exchange) and Clearing
Founded 2000 IPO 2005 (OSE: IMAREX) market cap appr NOK 2 Billion
15% owned by NYMEX Holdings (acquired Oct 2007), 295 employees
worldwide
Commodites worth US$200 billion traded via IMAREX Group in 2007
Over US$10 billion in freigth traded electronically on IMAREX screen in
2007
Global dry bulk and tanker freight futures and options (15% / 50% market
share)
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Creating Markets - the Imarex Group
Imarex Group services and marketsThe Group serves its members and clients around the world working in four main operationalsectors of the commodity markets.
Regulated exchanges and electronic trading platforms Derivatives clearing and settlement Derivatives and physical commodity brokerage Commercial market research and analyses services
IMAREX Group operates across the four operational sectors in the following markets:
Dry bulk and tanker freight derivatives UK, Nordic and European energy derivatives European and US emissions derivatives Physical UK, European and US natural gas markets Crude oil and middle distillates derivatives
Nordic salmon and seafood derivatives London Metals Exchange derivatives Weather derivatives Physical coal Nuclear fuels
Tr a d e vi a d ir e ct m e m b e r s h ip o r v ia ge n e r a l Cle a r in g M e m b e r s
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Creating Markets - the Imarex Group
Global client base for NOS Clearing and IMAREXAll the m ain com m odity traders are presen t 200 CLEARING m em bers in Q2 2008
Who Trades at Imarex?
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Creating Markets - the Imarex Group
Electronic trading on the IMAREX screenThe IMAREX trading screen is the ONLYsuccessfully liquid trading screen in the freightderivatives market
Screen activity:
5000 transactions / quarter
100 000 lots / quarter
USD 5 Billion + /quarter
Members trade DIRECT on screen or viaIMAREX brokers in Oslo, Houston, Londonand Singapore
ALL prices are FIRM and thereforetransparent
Clearing affords complete anonymity totraders when trading on screen
Screen is open 24 Hrs per day
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Creating Markets - the Imarex Group
The Dry Bulk FFA market in 2008
$125 billion notional value expected in 2008
2 million lots traded 2007
Priced in US dollars per day (equivalent to time charters)
Trades differently than tankers
Contracts are in # of days, not in Worldscale
Fewer trades, though larger notional values
Price discovery can be choppy
Market heavily dependent on handful of voice brokers
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Creating Markets - the Imarex Group
The growth of clearing for Dry Bulk FFAs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2003 2004 2005 2006 2007 2008e 2009e 2010e
OTC
Cleared
Liquidity still low with relativelyfew but very large contracts traded
every day Clearing has brought more newmarket participants, but still veryshipping focused
Clearing is primarily OTC
clearing
Clearing should enableelectronic trading, market nowlooking for a screen traded model
Model for future developmentmay come from the tanker FFAmarket where small contracts aretraded frequently in large volumes.2 0 0 2 - 2 0 0 7 s ee s g r o w t h i n
cl ea r in g f r o m 1 % t o 3 0 %
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Creating Markets - the Imarex Group
A new tool for dry bulk investorsD r y b u lk sh ip p in g i s b o o m in g
The BRICs are forecast to continue driving commodity demand for up
to 20 years
How can you invest in this growth story?
1. BUY dry bulk shares on NYSE, NASDAQ. LSE and OSE2. Trade FFAs
3. Trade Commodity related ETFs4. ... or
No w BDIFu tu re s , a n e w to o l fo r d r y b u lk i n v es to r s
Simple index future on the main dry bulk indicator BDI
Tradable electronically cleared at NOS Clearing or via clearingbanks and brokers MINI contracts where 1 LOT = $1 per index point
Trade on direction Trade as Hedge against dry bulk equities Trade as spread against FFAs
LI VE o n I M AR E X s cr e e n 2 4 h r s p e r d a y
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Creating Markets - the Imarex Group
Introducing the Baltic Dry IndexT
A composite of global shipping costs forbulk commodities such as grains, oreand coal on 26 shipping routes forsupramax, panamax and capesizevessels (BSI, BPI and BCI)
Indices and BDI based on dailyprofessional assessments from panel of
international ship brokers
Previously the Baltic Freight Indexclosed in 2001 BIFFEX traded asforward market on LIFFE
BIFFEX failed as a hedging tool forphysical shipping now using FFAs
Most public dry bulk shares closely tiedto movement in BDI (up to 93%
correlation)
BDI composition:
26 individual shipping routesMaking up 4 separat e sect or ind icesHandysize, supram ax, panamax and capesize vesselsBHSI, BSI, BPI and BCI
+ Index mult ip l ier s
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Creating Markets - the Imarex Group
Physical routes making up the Baltic IndicesC8 172000mt Gibraltar/Hamburg trans Atlantic RV 25%C9 172000mt Continent/Mediterranean trip Far East 25%C10 172000mt Pacific RV 25%C11 172000mt China/Japan trip Mediterranean/Cont 25%
CS4TC
P1A 74000mt Transatlantic RV 25%P2A 74000mt SKAW-GIB/FAR EAST 25%P3A 74000mt Japan-SK/Pacific/RV 25%P4 74000mt FAR EAST/NOPAC/SK-PASS 25%
P M4 T C
S1A 54000 mt Antwerp - Skaw Trip Far East 25%S1B 54000 mt Canakkale Trip Far East 25%S2 54000 mt Japan - SK / NOPAC or Australia rv 12.5%S3 54000 mt Japan - SK Trip Gib - Skaw range 12.5%S4 54000 mt US Gulf - Skaw-Passero 12.5%S4B 54000 mt Skaw-Passero - US Gulf 12.5%
SM6TC
HS1 28000mt Skaw / Passero - Recalada / Rio de Janeiro 12.5%HS2 28000mt Skaw / Passero - Boston / Galveston range. 12.5%HS3 28000mt Recalada / Rio de Janeiro -Skaw / Passero 12.5%HS4 28000mt US Gulf / NC South America - Skaw / Passero 12.5%HS5 28000mt SE Asia via Australia - Singapore / Japan 25%
HS6 28000mt S Korea/Japan - Singapore/Japan range incl. China 25%
H M 6 T C
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Other physical routes making up the Baltic indicesC2 160000mt Brazil (Tubarao) RotterdamC3 150000mt Barzil (Tubarao) ChinaC4 150000mt Richards Bay/RotterdamC5 150000mt West Australia/ChinaC7 150000mt Columbia/RotterdamC12 150000mt Gladstone/Rotterdam
Percentage contribution towards the BDI depends on
each individual routes assessment.Approximate composition is as follows:
CS4TC 23%
PM4TC 29%
SM6TC 17%HM6TC 9%
C2-C7 & C12 22%
TOTAL 10 0 %
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Creating Markets - the Imarex Group
Challenges for dry bulk equity investors
Physical dry bulk shipping is a fragmented and opaque market sectorwith a high degree of insider influence
Price movements of Dry bulk shipping equities are closely tied tofreight rates and the BDI
Freight rates vary from ship to ship, ocean to ocean and from sector tosector no shipping share is 100% tied to one trade route at any time
Experience of substantial equity losses caused by factors far outsidetheir field of knowledge
The FFA market has substantial volatility caused by unrelated insiderinfluence and pure-paper market activity
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Creating Markets - the Imarex Group
Elegant solutions using Imarex BDIFutures
BDIFutures is an Index futures contract based on BDI
Using the BDIFutures contract, investors and stock portfolio managerscan protect the value of the shipping equities from upside and downsideprice risk of the broader dry bulk market
The Imarex BDIFutures contract can be traded in lots as small as $1 perpoint providing low barriers to entry
24hr electronic trading with very low transaction fee
Imarex is worlds only regulated market for freight derivatives
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Creating Markets - the Imarex Group
Imarex BDIFutures specifications
Underlying: Baltic Exchange Dry Index TM (BDI)
Lot Size: 1 lot = 1 USD x BDI tick
(if index is 10 ,000 then 1 lot is USD 1 x 10 ,000 = USD 10 ,000)
Minimum lot per trade: 1 lot
Maximum lot per trade: 999 lots Settlement/Margins: Daily P+L and margins
Final settlement at maturity: Average of BDI per month
Final settlement day: Last day of each month
Forward curve: 6 months, 4 quarters, annual
Fees: USD 8.00 pr lot incl. execution / clearing
Execution: Directly on Imarex screen or via voice broker
Clearing: NOS Clearing ASA
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Creating Markets - the Imarex Group
BDIFutures for equity investorsTicker Name Exch.
Share price10/6
1 yrdaily
Since Feb 1daily
GOGL.OL Golden Ocean OSE 31.15 a) 88% 80%
SBLK Star Bulk Carriers Corp NASDAQ 13.74 87% *** 93%
DRYS Dryships Inc. NASDAQ 88.27 84% 73%
DSX Diana Shipping Inc NYSE 33.08 82% 83%
EGLE Eagle Bulk Shipping Inc NASDAQ 32.55 81% 92%
GNK
Genco Shipping & Trading
Ltd NYSE 64.86 79% 85%
EXM Excel Maritime Carriers Ltd NYSE 48.05 79% 84%
TBSI TBS International Ltd NASDAQ 42.75 77% 84%
PRGN Paragon Shipping Inc NASDAQ 19.56 77% ** 79%
NM Navios Maritime Holdings Inc NYSE 10.82 62% 55%
JIN.OL Jinhui Shipping OSE 57.75 a) 60% 75%
NMM Navios Maritime Partners LP NYSE 15.09 34% * 15%
FREE FreeSeas Inc. NASDAQ 6.48 26% 77%
* NMM since 13 Nov 2007** PRGN since 10 Aug 2007*** SBLK since 3 Dec 2007
a) in Norwegian Kroner NOK
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Creating Markets - the Imarex Group
Hedging LONG GOGL:NO position
BUY 10,000 GOGL:NO at NOK 34 (NOK/USD=5.1) so USD 6.67
Notional stock value = NOK 340,000 (USD 66,667)
IF BDI falls 5% in JULY GOGL could fall 4-7% or up to USD4666
SELL 6 lots BDIFut JUL08 at 11,000 = USD6 x 11,000
BDI falls 5% to 10,450 dragging GOGL:NO down 6% to USD 6.27
LOSS on equity position = USD4000 Profit on BDIFut JUL08 = 550 points @ USD6 = $3300
Total Profit/Loss = - US$700 (versus - USD4000 unhedged)
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Creating Markets - the Imarex Group
Hedging SHORT DRYS Position
Sell 5,000 DRYS at $80/share
Notional stock value = USD 400,000
IF BDI increase 5% in JULY DRYS could increase 4-7% or up toUSD24,000
BUY 36 lots BDIFut JUL08 at 11,000 = USD 36 x 11,000
BDI increases 5% to 11,550 bringing DRYS up 6% to USD 84.80
LOSS on equity position = USD24,000 Profit on BDIFut JUL08 = 550 points @ USD36 = $19,800
Total Profit/Loss = - US$4,200 (versus USD24,000 unhedged)
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Creating Markets - the Imarex Group
Trading through Prime brokers and GCMs
MF Global Matt Duggan +44 207 144 5390
Newedge Group Chris Bartlett +44 207 550 2207 Macquarie Bank Mark Fitzpatrick +44 203 037 4162 Deutsche Bank Henry Porter +44 207 545 5173 JPMorgan James H. Proudlock +44 207 777 3855 ABG Sundal Collier Erik Tynes +47 22 01 60 24
Carnegie Tor A. Svelland +47 22 00 93 91 Kaupthing Eljar Roland +47 24 14 74 68 DBS Vickers Roger Quek +65 6398 6066
Ple a s e c o n t a c t t h e I m a r e x BD I -TE AM a t a n y t im e fo r fu r t h e r
co n t a ct s a n d co n t r a ct in fo r m a t io n
Sales and set up - Thomas Bertel +47 23 89 42 46 Broker BDI Desk - Mikkel M. Holmesland, +47 23 89 42 14
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Creating Markets - the Imarex Group
Trade BDIFu tu r e s at Imarex today
www.imarex.com