Gold futures'make contracts for 100-baht weight'Pradit

"As far as I know, gold futures have been used as a speculative tool, which is not the right thing. The TFEX [Thailand Futures Exchange] should educate investors about their real function," he said.

Regulators should take whatever action was deemed necessary, as speculative trading in gold futures should not be encouraged, he said in his keynote speech to a Stock Exchange of Thailand seminar.

TFEX introduced gold futures in February to give investors and the jewellery industry a tool to hedge against the price swings for gold bars.

The recent decline in the oil market and high volatility in the equity market has sent investors to the gold futures market. Average daily volume is 500 contracts.

Since contracts are for 50 baht of gold, they are worth about Bt750,000, subject to gold price movements in the global physical market.

"We should increase the contract to 100 baht of gold weight instead of 50 baht in order to deter retail investors from entering the market," Pradit told reporters later.

Observers, however, believe that Pradit's comment was consistent with the proposal from physical goldbar traders who recently lost their customers to the futures exchange.

Kesara Manchusree, managing director of TFEX, said the suggestion to increase the gold weight per contract was only an idea, which had not been discussed by all parties.

Brokerages and traders disagree with this issue, due to their different customer base.

While dealers would like to reduce the contract size to 10 baht, physical gold traders want to lift it to 100 baht. The contract size is still kept at 50 baht per contract.

Brokerage customers who also trade stocks look to gold futures to diversify risk but don't want to put too much money in gold trading.

On the contrary, physical gold investors would like to take large positions as they mostly have more funds for investment.

Kesara said TFEX would need to evaluate the matter again.

"Most investors trading in gold futures are brokerage customers rather than physical gold investors. They would like to diversify risk aside from stock investment. Thus, they don't want to use much money to invest [in gold]. So, we need to find a balance for both," she said.

A brokerage source said the contract size of 100 baht is close to overseas markets such as Hong Kong with 150 baht.

In China, gold futures, which had been traded from January 1August 2008, had a contract size of 10 baht. However, 12 brokerages have gone bankrupt as investors had speculated heavily in the market.

Pradit also urged regulators to introduce new products such as interest rate futures, commodities and exchangedraterelated derivatives into the futures market. The four products available now on the TFEX are too few, he said.

The products are SET 50 index futures, SET 50 options, single stock futures and gold futures.

The Finance and Commerce ministries are consulting on the possibility of combining TFEX with the Agricultural Futures Exchange of Thailand and should reach a conclusion in three months, he said.

If they agree to merge the two markets, fragrant rice (Thai Hom Mali) futures would be traded, he said.

"The decision has to be made before the next harvest season for paddy rice," he said.

SET chairman Pakorn Malakul Na Ayudhya said experts would be appointed to study how to introduce interest rate contracts to the futures market.

TFEX has grown rapidly since its establishment in 2006 partly due to high volatility of the stock market, which forced investors to seek alternative products to manage their risk exposure.

Total turnover last year jumped 74.6 per cent to 2.15 million contracts from 1.23 million contracts the year before.

While only 161 contracts were transacted on the first day in 2006, in 2008, average daily trading volume was 8,837 contracts, worth Bt3.8 billion, with an open interest of 22,747 contracts.

TFEX ranks 45th out of 69 future exchange markets worldwide.