close
MENU
1 mins to read

NZX defends reference price of dairy futures contract

NZX has moved to defend the reference price used in its dairy futures contract, which launches on October 8.Open Country Dairy has asked the Securities Commission to investigate its concerns over the use of Fonterra's online auction price for whole milk p

NZPA
Thu, 16 Sep 2010

NZX has moved to defend the reference price used in its dairy futures contract, which launches on October 8.

Open Country Dairy has asked the Securities Commission to investigate its concerns over the use of Fonterra's online auction price for whole milk powder as a reference in dairy futures trading, Businessday reported. Open Country Dairy competes against Fonterra.

NZX said it consulted widely and was careful when deciding which price its dairy futures contract should settle to.

"After exhaustive analysis and ongoing consultation, it was determined that globalDairyTrade (gDT) is the most transparent and credible benchmark," NZX said.

The only potentially viable alternative was for NZX-owned Agrifax, which supplies agricultural data to a range of local and international clients, to conduct a daily survey of dairy prices in order to establish an aggregate reference price across the industry.

"This option was entirely dependent on broad participation from dairy processors in the survey. By far the majority of these firms were reluctant to provide their prices to the survey," NZX said.

NZX decided that the futures contract would settle to gDT as it better represented actual prices paid for whole milk powder, and was the best reference price for the entire dairy industry, not just Fonterra.

Open Country Dairy alleged that NZX has a conflict of interest and is favouring its commercial interests over its regulatory role.

NZX said the dairy futures market would be heavily regulated.

"NZX views the fact that Open Country Dairy is able to make a complaint as evidence that this transparency is already working, and NZX is happy to be part of the process of ongoing challenge and communication as the market grows."

On September 10, NZX said the Securities Commission has declared NZX an authorised futures exchange, enabling it to operate its derivatives market and launch new futures products, including dairy futures.

NZX is launching the global whole milk powder futures contract on October 8.

NZPA
Thu, 16 Sep 2010
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
NZX defends reference price of dairy futures contract
8530
false