* Freight users back central trading screen
* Baltic to examine screen technologies
By Jonathan Saul
LONDON, Aug 18 (Reuters) - A majority of sea freight market users support the Baltic Exchange setting up a central trading screen for forward freight agreements (FFAs), a survey canvassed among industry players found.
The FFA market has grown in recent years from its beginnings in 1985 and was estimated to be valued at $130 billion to $150 billion in 2008, freight derivatives brokers said.
Stefan Albertijn, dry bulk chairman of the advisory Freight Market Information Users' Group (FMIUG), said on Tuesday it had polled members which included Deutsche Bank, Citigroup and trade houses such as Cargill, Louis Dreyfus and Noble.
"Yesterday we got the results of our referendum where 87.5 percent of my members -- the principals -- decided to give the Baltic a clear mandate to work together with the brokers and possible third party providers to look at putting in place a common electronic trading platform," Albertijn told Reuters.
"This is the first time that the FMIUG has given a formal written mandate to the Baltic Exchange," he said.
FFAs, which allow a buyer to take a position over where freight rates will stand at a point in the future, are not traded on an exchange.
GFI Group, Imarex and SSY currently provide three individual screens for trading FFAs.
Albertijn said regulators were looking more closely at the over-the-counter market for exotic derivatives after last year's financial crisis.
"The outcome of which might be that some classes of OTC derivatives might be forced towards clearing and or to centralised trading platforms," he said.
"This is an attempt by users in the Baltic to stay ahead of the legislative curve."
The London Metal Exchange (LME) said last month it was considering entry into the FFA market, drawing criticism from ship brokers. [ID:nLF562666]
Chris Reilly of the FFA Brokers' Association told Reuters last month freight derivatives brokers would support the idea of a central trading screen on the Baltic Exchange. [ID:nLO206868]
Albertijn said there had been talks in the past between the FMIUG, the brokers' association and the Baltic Exchange, "but they always failed".
"This year we are having a more formal process which the brokers are also a part of and where we are trying to give the Baltic a clear mandate to get something done," he said.
CENTRAL SCREEN
John Banaszkiewicz, managing director of freight derivatives broker FIS, said it was pleased the FMIUG agreed that the Baltic Exchange was "the central authority in our market".
"But I think the question still remains as to whether we really need a central screen," Banaszkiewicz said. "Building a screen won't create liquidity by itself -- in fact it could dilute it when it's at a delicate stage."
The London-based Baltic Exchange, which is made up of over 550 member companies including ship brokers, ship owners and operators, and freight derivatives traders, suspended earlier plans to introduce screen FFA trading.
Shipping sources said it was in part due to opposition previously from brokers.
"Our next step is to look at the available technologies and work with the brokers and the users to see which ones deliver what the market place wants," Baltic Exchange Chief Executive Jeremy Penn told Reuters.
"The first thing to do is to look carefully at what the proposed technology should provide and then consider all the potential suppliers in that context."
In a letter sent to FMIUG members and seen by Reuters, the proposal mandates the Baltic Exchange to resume discussions with last year's short-listed technology providers.
"The LME was one of a number of technology providers that the Baltic spoke to and held discussions with last year," Penn said without giving further details.