Miller Magazine Issue: 118 October 2019

82 ARTICLE MILLER / OCTOBER 2019 open interest peaking in July 2019 at 42,649 contracts (2,132,450 mt) while total volume continues to grow to 339,561 (16,978,050) contracts in total as of the first part of September. Sunoil has yet to trade since the contract started in late August. One area of growth potential remains in the use of BWF, BCF and BSF in cash contracts. Many in the Black Sea are already familiar with corn contracts that reference prices of Chicago corn plus a premium; the same can be applied with BWF, BCF and BSF now as well. This can allow for the use of a more effective pricing reference as it relates to physical cargos. The use of these PLATTS contracts brings greater transparency for the market as a whole. In the past, it was a bit tough to find forward values 6-9 months in the future, but now a simple view to CME allows anyone in the world to view where current prices remain. A market carry or inverse can be quickly realized, analyzed, and utilized for decision making. This increase in transpar- ency is not welcomed by all though, as sellers typically do not like it due to more visibility, while consumers wel- come this to bring better prices. In conclusion- these new PLATTS contracts help bring great awareness to the topic of risk management for Black Sea players, but still are not the end all solution to manage price risk. There remains plenty of risks as it relates to credit, execution, foreign exchange, inter- est rates. The need for cash in a risk management plan remains an important factor to understand to manage margin calls, and this remains a large hurdle for many in the Black Sea as cash is typical- ly wanted to re-investment in the physical business. The market’s involvement is needed to sus- tain liquidity in these contracts, which are crucial for the health of a trading market. We live in an instant gratification world, but we must remember it took centuries for the CME to gain the presence that it currently has in the deriv- ative’s world (Chicago Board of Trade, or CBOT, now Chicago Mercantile Exchange, or CME, started in 1858), and it was just in the 1980’s when options were introduced to the market. BWF/ BCF had options introduced a few months after the futures were introduced. Even though OI re- mains stagnant right now for these contracts- they re- main a risk management tool available for the market to manage Black Sea price risk. Other markets can still be used as a cross hedge, but BWF, BCF and BSF are directly tied to cash prices in Russia and Ukraine. The subject of price risk management can take on dif- ferent meanings and understanding, it’s the job of INTL FCStone Financial Inc. to help understand your price risk and the best strategies to implement to help man- age them. For some this might be a great awareness of what could be driving the marketplace, while for others it might be sophisticated strategies to manage price risk. Whether you are new to the industry or a seasoned trad- er the goal remains the same; to manage price risk rath- er than allowing the market to manage you. The most speculative strategy is doing nothing and watching the market dictate if you make or lose money- those pro- active in some way are in a better position to grow their business and the use of BWF, BCF and BSF could help with that process. *INTL FCStone Inc. (NASDAQ: INTL), through its subsidiaries, provides clients with a comprehensive range of customized fi- nancial services around the globe. The trading of exchange-trad- ed futures and options as well as swaps and OTC derivatives involves substantial risk of loss, and you should fully understand those risks prior to trading. All references to exchange-traded fu- tures and options are made on behalf of the FCM Division of INTL FCStone Financial Inc., a NFA member and CFTC registered Futures Commission Merchant and Commodity Trading Advisor.