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Gold contracts to be in baht

CHADAMAS CHINMANEEVONG

The Thailand Futures Exchange will use baht currency to settle its gold futures contracts, despite calls by local gold traders to set the terms in US dollars.

Kesara Manchusree, the TFEX managing director, said the contracts must be settled in baht under regulations set by the Bank of Thailand.

Addressing a conference on gold futures yesterday, she said that the exchange expected to finalise details about trading fees, collateral and contract units by the end of the month, with trading to begin in September.

The contracts will be based on 10 baht-weight bars (151.6 grammes) of 96.5% purity, the standard for the local gold market. The new contract will be the third product traded on the TFEX, after SET50 index futures and options.

Mrs Kesara said that a proposal by the Gold Traders Association of Thailand to allow for paper contracts to be used for physical delivery of gold was still being reviewed.

New York futures markets allow for physical delivery, while Taiwan only allows paper contracts for trade.

The TFEX is also revising its rules about the registration of market makers, and will allow companies or institutions, both local and foreign, to act as market makers.

Previously the TFEX restricted the role to exchange members.

''We think that gold futures will be a popular instrument for many investors, particularly asset management companies seeking to hedge the risk of their portfolios,'' Mrs Kesara said. ''Many asset management companies already trade gold futures in the overseas market.''

Kritcharat Hirunyasiri, the deputy secretary-general of the Gold Traders Association, said there remained many uncertainties among members about gold futures contracts as well as their potential impact on local trade.

''We don't really understand everything about the contracts, particularly the potential benefits for retail sellers,'' he said.

Mr Kritcharat expressed concern that the launch of gold futures could affect trade at the 7,000 gold trading shops nationwide.

''If one day, paper trading proves popular and investors shift away from physical gold to paper contracts, it will be a big problem,'' he said.

However, Mr Kritcharat acknowledged that the worldwide trend was moving away from physical trade of gold to electronic trade.

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