NZX has hit back at criticism from New Zealand's second biggest milk processor that its new derivatives market is flawed.Open Country Dairy is not convinced the NZX's whole milk powder derivatives market has integrity, just weeks before trading is due to
NZX has hit back at criticism from New Zealand's second biggest milk processor that its new derivatives market is flawed.
Open Country Dairy is not convinced the NZX’s whole milk powder derivatives market has integrity, just weeks before trading is due to begin.
New Zealand’s second biggest milk processor argues that using Fonterra’s online auction system to determine the futures whole milk powder cash settlement price must be questioned.
Fonterra, which has indicated it would be a participant in the futures market due to launch on October 8, controls the volume of product through its system as well as the formula for setting the auction starting price.
Chairman Laurie Margrain told the National Business Review that a participant in the futures market that has the ability to influence it is a clear conflict.
Open Country Dairy has raised the issue with the Securities Commission, which has confirmed it is considering it.
However, NZX said in a statement this afternoon it was very careful and considered when it came to decided exactly which price it should settle to.
“NZX consulted widely last year with firms across the dairy industry, including Open Country Dairy, to determine the best reference price to use for dairy futures,” NZX said.
“After exhaustive analysis and consultation, it was determined that [Global Dairy Trade] is the most transparent and credible benchmark.”
Other options included using the NZX-owned Agrifax index or a daily survey of dairy prices to establish an aggregate reference price.
“This option was entirely dependent on broad participation from dairy processors in the survey.”
NZX indicated the majority of firms were reluctant to provide their prices to the survey.
Mr Margrain said Open Country was broadly supportive of the futures market but had raised this issue with NZX and felt its concerns were not addressed.
“It may be that there is no issue but it needs to be explored,” he said.
