The Thailand Futures Exchange (TFEX) will sign a memorandum of understanding (MoU) on Monday with three domestic rubber producers and five securities companies to enhance trading liquidity of ribbed smoked sheet (RSS3) futures.
The three major rubber manufacturers poised to sign the MoU are Thai Hua Rubber Plc, Von Bundit Co Ltd and Sri Trang Agro-Industry Plc.
The five brokerage firms are Classic Ausiris, KT Zmico Securities, Trinity Securities, MTS Gold Futures and Aira Securities Plc.
Nuttapong Hirunyasiri, managing director of MTS Gold Futures, said the cooperation among the eight companies aims to increase trading liquidity for RSS3 futures on the TFEX, while enhancing investor confidence in the clearing and settlement process.
RSS3 futures have been settled by a cash procedure together with physical settlement and physical delivery since 2016, but investors are not confident of the physical delivery process, and natural rubber manufacturers and exporters felt compelled to sign the MoU to enhance investor confidence.
The Agricultural Futures Exchange of Thailand was completely integrated into the TFEX in early 2016 to address the former's low trade volume and develop a single, fully integrated entity for trading, clearing, settlement and depository services for derivatives products.
Pongsak Kerdvongbundit, managing director of Von Bundit Co Ltd, one of Thailand's top rubber exporters, said rubber futures are traded globally in accordance with trading demand and global rubber production.
In Thailand's rubber futures market, financial liquidity remains insufficient and the company had recommended the Stock Exchange of Thailand incorporate a block trade system and enact an MoU between rubber manufacturers and brokerage firms to enhance trading liquidity and investor confidence, with the TFEX as a medium, Mr Pongsak said.
Most investors have opted to trade in futures markets with better financial liquidity, such as the Tokyo Commodity Exchange, Japan's largest and one of Asia's most prominent commodity futures exchanges, he said.
If the TFEX's financial liquidity increases in the future, investors will hopefully return to trade futures products there, Mr Pongsak said.
The TFEX initiated trading of RSS3 futures on Feb 15, 2016, but volume remains slim despite the exchange appointing Ausiris Futures, Von Bundit and Rubber Tree Co Ltd as market makers to enhance financial liquidity.
TFEX data reported daily trading volume of RSS3 futures on the TFEX from early this year to Feb 27 at 0-220 contracts, with some days registering no trading volume. Open interest stood at 500-550 contracts, meaning investors still held contracts but settlements were not made.