Norway Licenses Exchange for Forestry and Paper HedgingGiles Broom
NOREXECO ASA said Norway’s Finance Ministry awarded it a license to operate a regulated market exchange for paper forestry financial derivatives by the end of the year.
Transactions will be open to exchange members and cleared through European Commodity Clearing AG in Germany, the Kongsvinger, Norway-based company said in an e-mailed statement.
The license enables NOREXECO to establish the world’s first pulp exchange, providing derivatives linked to a physical market that’s worth $50 billion to $60 billion, according to NOREXECO Chief Executive Officer Stein Ole Larsen.
“It’s a great relief to receive the operating license as now we can proceed in the work of signing up members,” Larsen said in a phone interview. “We will be working hard to make this a lively market place with a lot of liquidity.”
Regulatory initiatives following the 2008 financial crisis promoted the use of regulated exchanges and clearing houses to trade commodities derivatives. Trading on the NOREXECO exchange will be compliant with national regulations, the Dodd-Frank Act and European Markets and Infrastructure Regulation, according to the statement.
NOREXECO is trying initially to attract to the exchange producers and users of pulp that need to hedge positions, as well as financial firms. Pulp derivatives may reach 10 percent of the size of the physical market during the first year, according to Larsen.
NOREXECO was established in June 2012 to create the exchange and is owned by 46 private investors.