The global market for derivatives based on iron ore could expand to reach 100 million metric tons in 2012, data provider The Steel Index (TSI) said on February 21.

"We expect 2012 to be the year when we see the cleared volumes of iron ore derivatives exceeding the 100 million metric ton mark," Tim Hard, director of steel and scrap at TSI, told Dow Jones Newswires. "The unknown is how much further it goes than that," he added.

The data provider indicated that global investors cleared just below 7 million tons of iron ore derivatives in January, according to the media outlet. TSI stated that continuing this volume would result in these contracts rising 40 percent in 2012 from the previous year.

Data provided by TSI indicates 2011 saw 58 million tons of iron cleared through worldwide contracts, the media outlet reports. This activity was greater than a 100 percent increase over the volume of 21.1 million tons in the previous year.

Business Standard reports that the number of products used to hedge iron prices has increased since futures base on steel billets begun trading on the London Metal Exchange in 2008. 

Deutsche Boerse AG's Eurex will offer derivatives that are based on the Russian index RDX USD, according to an announcement made on February 16.

These risk management tools will be created through collaboration with the Vienna Stock Exchange, which currently offers the index. Futures and options associated with the RDX USD will be available to market participants starting on March 19, according to Automated Trader.

The RDX USD Index, which will serve as the basis for the new financial instruments, consists of 15 securities, according to MarketWatch. The securities that compose the index are the most liquid depository receipts contained in the London Stock Exchange's international order book, Financial News reports.

The derivatives will be settled in cash, and futures will be available for trade between 8 a.m. and 10 p.m. CET, and options between 9:15 a.m. and 4:30 p.m., according to Automated Trader.

"Our highly liquid platform now also offers our global customers listed hedging instruments based on this index, which is mainly used in the off-exchange market," said Steffen Koehler, Eurex's head of product development, MarketWatch reports. 

Financial services giant State Street Corporation launched an exchange for trading OTC derivatives on February 15, according to a statement. The swap execution facility, named SwapEx, was released to coincide with the adoption of various global financial regulations.

State Street announced plans in September to establish a swaps clearing platform that would be used to clear certain derivatives, and stated that it planned to apply to the appropriate U.S. authorities to get the SEF approved once further clarification on new regulations was provided, according to The Financial Times.

"The derivatives market is in the midst of significant change as it moves away from a bilateral trading model to a centrally traded and cleared environment that offers greater price transparency, liquidity and enhanced risk management," Clifford Lewis, executive vice president and head of the eExchange business at State Street, said in the statement.

Most OTC derivatives will be relegated to being traded on exchanges once applicable regulation included in reforms such as Markets in Financial Instruments Directive, Dodd-Frank and European Market Infrastructure Regulation is adopted.

State Street plans to file relevant documents with the Commission Futures Trading Commission when the agency begins accepting applications later in 2012. 

Pension funds may abandon the use of OTC derivatives due to increasing costs and more stringent regulations, professional services firm Towers Watson said in a recently released report. These institutional investors have long used derivatives tied to inflation and interest rates to manage the risk associated with their portfolios.

On February 9, the Council of the European Union and the European Parliament voted to approve the European Market Infrastructure Regulation, which provides new laws related to the trading of OTC derivatives, according to aiCIO Magazine. The new regulations will enable various derivatives to be traded in marketplaces similar to exchanges and be cleared through central counterparties.

While some of the derivatives used by pension schemes are not yet affected by the new regulations, the financial instruments could soon fall under the new laws. OTC derivatives that do not need to be centrally cleared will require more collateral, raising costs for market participants that want to use them.

The paper also references the new capital specifications of regulators, expressing concern that the desired transactions will obligate investors to keep large amounts of cash on hand, which represents capital that could be placed into other higher-yielding assets. 

Derivatives trading surged on the Bombay Stock Exchange (BSE) during the week ending February 10, increasing almost five-fold during the period.

Trading volumes spiked from 37.8 million rupees on Monday, February 6, to 124.9 million rupees on Wednesday, February 8, according to Daily News & Analysis. Activity increased to almost 176 million rupees during the final session of the week, The Economic Times reports.

The BSE announced that it was initiating the first phase of its Liquidity Enhancement Incentive Programmes (LEIPS) on September 28, 2011, and the second phase of the plan on October 26, 2011, Daily News & Analysis reports.

The LEIPS program entailed the exchange providing derivatives traders with capital incentives for the use of derivatives, according to The Economic Times. Options trading and the use of trading algorithms both contributed to strong trading activity on Thursday, Rajesh Baheti, managing director of Crosseas Capital, told the media outlet.

"Further, volumes could have been triggered by February mid-month BSE derivatives that expired on Thursday. From tomorrow, there will be a bigger jump in turnover as trading moves to the end-month expiry contracts," he told the media outlet.