HOUFEX Launches Exchange of Futures for Physicals

HOUFEX Launches Exchange of Futures for Physicals
(1888PressRelease) HOUFEX, a leading commodity exchange has launched the
Exchange of Futures for Physicals (EFP) transaction facility
(1888PressRelease) HOUFEX, a leading commodity exchange has launched the Exchange of
Futures for Physicals (EFP) transaction facility. This is an important step towards achieving
greater integration of the commodity futures markets with the physical market and it will greatly
enhance the utility of commodity futures trading for commodity value chain stakeholders.

An EFP transaction is an exchange of futures contracts for a physical commodity transaction
between two market participants. Through EFP either new futures position is created, existing
futures positions are closed or futures positions are swapped with physical commodity positions.
Among other benefits, by using EFPs, market participants can separate the logistics of
commodity trade from the pricing of commodities, allowing them to optimize both
independently.

To start with, The Houston Futures Exchange will be offering EFP in Gold and Gold mini, Silver
and Silver mini, Copper, Zinc, Aluminum, Nickel, Lead, and Wheat.

EFP allows individuals and companies to choose their trading partners, delivery site, the grade of
product to be delivered, and the timing of delivery and simultaneously use the futures market for
pricing their products. Price risk is the main cause for defaults in physical trade. EFP eliminates
this very risk through the futures market. For physical market players, EFP is the preferred
method of commodity delivery, as it provides greater flexibility than the traditional exchangeset
delivery modalities. This eliminates substantial sales and/or supply risk. Moreover, EFP can be
effectively used to take positions in less liquid far month contracts.

Without an EFP, the sale or purchase of a physical product and the separate entry of a futures
order may result in price slippage due to market volatility or fluctuating trading volumes on the
spot market and/or the futures market. Also, relative depth at a specific point of time usually
affects high volume transactions on the market. These shortfalls can be over come by EFP
transactions. In addition, EFP ensures that large physical trades with corresponding futures
transactions do not interfere with the regular futures market functioning.

Mr. Kevin Summers, Chairman, via his congratulatory message to the team commented that "As
a regulator and exchange we issue policy guidelines on product innovation from time to time and
I am happy to note that HOUFEX has been fulfilling its responsibility of product innovation on
an ongoing basis. The launch of EFP by HOUFEX is a good example of product innovation and
signals further development of the "North American Commodities Market."

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