The Iran Energy Exchange (IRENEX) for the first time on Wednesday launched futures contracts backed by energy carriers.
Naphtha and methanol are the underlying assets of the first futures unveiled at a ceremony attended by Majid Eshqi, the managing director of Securities and Exchange Organization.
A futures contract is a standardized, legal agreement to buy or sell an asset at a predetermined price at a specified time in the future. At this specified date, the buyer must purchase the asset and the seller must sell the underlying asset at the agreed-upon price, regardless of the current market price at the expiration date of the contract.
Energy futures are derivative contracts with energy products as the underlying asset. Market participants can buy or sell energy commodities through energy futures at a predetermined future price and date.
Eshqi spoke about the merits of derivative markets, noting that it can hedge investor risks against price fluctuations.
Officials express the hope that inception of futures trade for naphtha and methanol will pave the way for setting up futures market for a broad range of petroleum products and energy carriers
“Moreover, the derivative market creates new vistas for investment where real and legal entities plus domestic and foreign buyers can partake,” he was quoted as saying by Securities and Exchange News Agency (SENA).
The IRENEX derivative market can be attractive because of the small size of contracts, which potentially attract large number of buyers. According to SENA, each contract is backed by one barrel of the underlying asset.
The SEO announced rules for energy-back futures in January. Earlier Ali Naqavi, the IRENEX chief, said the energy exchange would soon launch future contracts for assorted petroleum products, including gasoline and natural gas condensates.
He expressed the hope that inception of futures trade for naphtha and methanol will pave the way for setting up futures market for a broad range of petroleum products and energy carriers.
Naqavi added that the groundwork and technical infrastructure for futures contract were prepared in coordination with the Central Securities Depository of Iran, the clearing house of Iran’s capital market, and Tehran Securities Exchange Technology Management Company.
He said the market hosted an estimated 40 million tons of commodities since its birth a decade ago.
“About 27 million tons of traded goods were exported, 75% over the past three years.”
More than 5.118 million tons of goods were handled at the IRENEX since the beginning of the current fiscal that ends on March 20, he said, adding that value of exports exceeded $3 billion.
