This week a shekel-dollar futures contract was launched on
the Chicago Mercantile Exchange (CME). The CME is one of the
largest exchanges in the world for futures contracts, and it
is the leading foreign currency exchange. The launch
signifies that the shekel is considered a convertible
currency, and has a place among the international currencies
traded on the CME.
"We welcome the start of trading in the shekel on the Chicago
Mercantile Exchange," Governor of the Bank of Israel Prof.
Stanley Fischer told Globes. "This marks another
important achievement in penetrating the shekel into leading
financial markets. Trading in the shekel on the CME gives
Israeli companies operating in global markets another tool.
With the development of the markets, we expect to see growing
activity in the shekel on the CME."
Observers said that Fischer's international prestige may have
played a role in the introduction of the new contract.
The future contract on the shekel is a standard contract
denominated in units of NIS 1 million. Each contract will
expire at the end of the quarter. The minimum variation in
the price of a contract will be $10.
This is the first time that the shekel will be traded in
substantial volumes outside Israel. Trading on the CME will
lead to higher liquidity for the shekel, which should reduce
the sell/buy spread.
In general, the overwhelming majority of international
foreign exchange trading is done by speculators. Up to know,
in contrast, most trading in the shekel was done by business
parties since there was no forum for speculators to trade the
shekel. Speculators and professional traders provide a larger
and much more liquid market than business people alone.
One reason that the shekel has not been attractive for
speculators is because of its high sell/buy spreads.
The new shekel contracts are expected to boost the shekel's
liquidity, and will probably boost the use of the shekel
among speculators.
Bank of Israel foreign currency department director Barry
Topf told Globes: "Currently, there is no regulation
or restriction on foreign exchange trading in Israel, and the
shekel is considered a convertible and tradeable currency
just like other leading international currencies. This is no
trivial matter. For example, there are currencies that are
traded more, such as the South Korean won or the Thai baht,
that are not as convertible as the shekel. Another
significance of the launch is that if the CME bothers to
launch futures contracts for the shekel, this means that
there's interest in the shekel in the market."
The exchange rate is not expected to be affected.
One man who worked hard to promote the launch of shekel
futures contracts is CME chairman emeritus and director Leo
Melamed, 76. He has been active on the CME for over 46
years.
Melamed told Globes: "The Bachar committee greatly
contributed to [the international reputation of Israel]
because the committee undertook significant steps to make
competition in the market more sophisticated, and made the
Israeli market better vis-a-vis the international markets. I
met Governor of the Bank of Israel Prof. Stanley Fischer and
Israel Securities Authority chairman Moshe Tery, and we
decided that the launch of a futures contract on the shekel
would tell the world that Israel was becoming part of the
international financial community. . . . For Israel, the
launch of shekel futures contracts basically means, `We feel
good about the economy, and we're prepared to open the
Israeli market to the world. We want to be part of the global
economy, and recommend using the shekel because we believe in
our future economic strength.' "
Melamed told Globes that the CME was examining the
possibility of launching exchange traded funds (ETFs) or
futures contracts on the Tel Aviv 25 index.
