Thailand Futures Exchange (TFEX) begansilver futures trading on June 20 while extending trading hours for both gold and silver futures to respond to demand for trading hours that more closely match the US market.
Silver futures made a strong showing on their debut on the Thailand Futures Exchange (TFEX) yesterday, with 178 contracts traded in the morning session and a day's total of 555 contracts.
Each contract is worth 100 troy ounces of 0.999% silver bullion, and the heaviest activity was for August contracts, with 481 traded.
August contracts opened at 1,151 baht per troy ounce and traded in a tight range to close at 1,117 baht.
In contrast, the launch of gold futures two years ago saw only 161 contracts traded in the morning session upon their launch.
Kesara Manchusree, managing director of the TFEX, said the extension of evening trading by another three hours to 10.30pm for both gold and silver futures contracts will help to boost liquidity for both products.
The evening session now ties to the opening of the US commodities markets, reducing the time discrepancy and potential price fluctuations between the two markets.
Brokers welcomed the launch of the new silver contracts but cautioned that Securities and Exchange Commission (SEC) regulations could curtail their growth.
The SEC requires sales agents for the product to have been in operation for at least three years.
Gold futures contracts are exempt from the three-year rule for sales agents.
Currently, 55 agents are approved to market gold futures contracts on behalf of six gold-related brokers, but the three-year rule prohibits many of them from also offering silver futures contracts.
MTS Gold Futures, with 19 sales agents overall, is one of the few exceptions, as its agents act as branches rather than independent entities.
Ausiris Futures, another major player, says only one in five of its sales agents can meet the SEC rule, while competitor YLG Bullion and Futures said about half of its 20 agents are eligible.
SEC officials say they are aware of the problem and will amend the regulation, although it could take several months pending formation of a new board.
Ausiris president Boonlert Siripatvanich said sales agents may ask customers to submit orders directly to the broker.
Alternatively, agents may transfer their business structure and act as broker branches.
"In the medium term, agents may convert to branches," said Mr Boonlert.
Thirachai Phuvanatnaranubala, the SEC's secretary-general, said silver futures will become an important tool for businesses to manage price risks for a key raw material.
The office is also considering adding two new contract types - oil futures and foreign exchange futures - to further the development of the derivatives market, he said.
Mrs Kesara said oil futures contracts could be launched in October, based on underlying Brent oil prices and pitched at both investors and small businesses seeking to hedge their exposure to oil price fluctuations.
The TFEX may ask major oil companies to serve as a market maker and enhance market liquidity for oil futures contracts once launched, she added.
The contract size of silver futures is 100 ounces (or approximately 3.1 kg), or around 90,000 baht (or approximately $3,000). Silver will be quoted in Thai baht per ounce, and its underlying price will be based on 99.9% pure silver.
Final settlement will be in cash when the contract expires, instead of physical delivery. Final settlement prices for silver will be based on the same source as when gold futures are settled: the London Bullion Market Association.
"TFEX will continue our training programme for the next three months to educate investors," Mrs Kesara said.
Boonlert Siripanich, president and CEO of the gold and silver broker Ausiris Co Ltd, which operates on the Thailand Futures Exchange (TFEX), said the price of silver rose from US$28 per ounce in January 2010 to $30 per ounce at the end of last year. It now stands at $48 per ounce.
Silver prices have risen correspondingly with gold, partially because of speculative trading by hedge funds due to the weakening dollar. Demand for silver for industrial purposes has also increased, particularly in nanotechnology, IT and the medical sector.
"Demand for silver in the industrial sector is expected to increase around 50-80% within the next five years," Mr Boonlert said.
Prices of gold and silver are likely to increase in the near future as the US central bank has decided to keep its low interest rate, which may cause further depreciation of the US currency.
Mr Boonlert expects the prices of gold and silver will continue to rise until the third quarter of this year. He predicts gold will reach $1,600 per ounce and silver $50.75, the highest in the past 31 years.
Shayne Heffernan
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.
