Published June 1, 2009

Sicom wakes up and smells the coffee

By JAMIE LEE

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WHEN at war, the enemy's enemy is your friend.

This could be one reason that prompted Singapore Commodity Exchange (Sicom) to forge an alliance recently with the National Commodity & Derivatives Exchange of India (NCDEX).

Sicom said last week that it was working with NCDEX to develop products for cross-listing, as well as list its two existing products - rubber contracts - on NCDEX.

This is of little surprise when one considers that NCDEX is a competitor of Multi Commodity Exchange of India (MCX).

MCX - the largest commodity bourse in India by turnover - was founded by the same people bringing in Singapore Mercantile Exchange (SMX): Financial Technologies (India).

That, coupled by the fact that NCDEX is looking to launch some metal contracts soon and possibly introduce them to Singapore through Sicom, shows how competition is heating up since the move would go head-on with MCX's strong focus on metal.

It is a strategic move for Sicom to engage NCDEX, the largest agricultural commodity exchange in India, which is, like SMX, keen to capitalise on Singapore's ambitions to become a commodities trading centre.

Besides having immediate access to India - the agricultural powerhouse in Asia - and working its way into a restricted market (foreign investors are not allowed to trade commodity futures in India), Sicom's work with NCDEX would allow more cooperation in product development and cross-tapping of expertise in this area.

This is no doubt a relationship that Sicom would like to develop and deepen.

At the press briefing, Sicom's chief executive, Jeremy Ang, shook NCDEX chief executive R Ramaseshan's hand after exchanging documents and declared loudly that it will be a 'long-term' partnership, with a big grin in tow.

But one criticism is that this alliance seems overdue, especially when Sicom and its parent Singapore Exchange (SGX) has had limited success in the commodities trading business.

The fact that Sicom - which was established in 1994 and bought over by SGX a year ago - has only two contracts for rubber speaks volumes.

The Joint Asian Derivatives Exchange (Jade) - a joint venture between SGX and the Chicago Board of Trade - folded about a year after it was formed in late 2006.

There is speculation that the Sicom-NCDEX alliance was sparked by SMX's debut this year, which isn't a bad thing. There is no shame in responding to competition, as long as one is strategic and emerges triumphant.

But in order for Sicom to beat SMX at its game, it must move faster to introduce products and forge more partnerships to ease into the global commodities market.

There are plans in the pipeline: Sicom has indicated that it may introduce coffee and gold futures contracts in the second half of the year, adding that there has been interest from industry players. Sicom is also expected to establish a link with the Singapore Exchange (SGX) by August such that the latter's existing trading members would be able to trade Sicom contracts as well.

All well and good.

But against market indications (since as early as 2001, depending on which guru one listens to) that the mismatch between long-term demand and waning supplies of commodities will thrust this asset class into the investors' spotlight, perhaps Sicom should pick up speed.

Meanwhile, SMX has been quiet on its product mix. Whether this is a strategic move to keep competitors guessing, or a matter of clearing up procedural matters - for example, Sicom could not say what products it was launching with NCDEX because they were pending regulatory approval - is speculative.

But the war is brewing. And when it happens, let's hope Sicom is ready for it.