The Singapore Exchange (SGX) will offer futures contracts for DRAM (dynamic RAM) chips by the first quarter of 2003, the exchange said in a statement Monday. This will be the world's first futures market for DRAM chips, SGX said.
Futures markets enable companies to enter into contracts to buy and sell goods at some time in the future, but at a price fixed at the time of signing the contract. It is seen as a form of risk reduction, or risk hedging, in markets where the price of goods is highly volatile.
SGX said it is setting up the DRAM futures market after gathering feedback from chip manufacturers, users and other companies in the electronics industry, who noted that the prices of DRAM chips have recently been subject to high volatility due to extreme fluctuations in demand and supply.
In November last year, a 256M-byte stick of SDRAM (synchronous dynamic RAM), the most common type of PC memory, was selling for around US$17 on Asia's memory spot market, according to ICIS-LOR. This almost doubled to $30 by the end of 2001 and by mid-January reached around $54 -- a tripling of the price in just over two months.
But over the same period, the price of Rambus DRAM, a proprietary memory used mainly with Intel Corp.'s Pentium 4 chips, fell from $83 to $75.25, highlighting the uncertainty in this market.
And between March and May this year, the price of 128M-byte DRAM on the Asian spot market fell by more than half from $4.38 to $2.09.
SGX's DRAM futures market is being supported by the government's ICT (information and communications technology) regulator Infocomm Development Authority (IDA), and by International Enterprise Singapore.
The contract specifications, including the type and memory capacity of chips, will be finalized after further consultation with the industry, SGX said. SGX expects that the contracts will be denominated in U.S. dollars and that the size of each contract will be 10,000 units of DRAM with a value of approximately $70,000.
Subject to regulatory approval, the DRAM Futures contract will be traded on the SGX derivatives market's Electronic Trading System (SGX ETS), SGX said in its statement.