How Baltic market information is produced
The index model used by the Baltic Exchange was established in 1985 with the launch of the Baltic Freight Index (today’s Baltic Dry Index) and used to settle trades on the world’s first freight futures exchange, BIFFEX. Although there have been a few minor modifications along the way, the model has essentially remained unchanged since its introduction and relies on panels of independent shipbrokers around the world giving their professional judgement as to the prevailing level of the open market within the parameters of the route they have been asked to assess. The numbers produced by the Baltic Exchange are based on an underlying understanding of what is actually happening in the freight markets.
Overall responsibility for the administration of the Baltic Exchange's benchmarks belongs to the Board of Baltic Exchange Information Services Ltd (BEISL) Governance Council. This Board Council currently comprises a number of directors who also serve on the Board of the Baltic Exchange Ltd (BEL) five representatives of the appropriate segments of the market (including at least a dry bulk, a wet bulk and a shipping derivatives broker panellist) (Market Representatives) and one director of the Board of Baltic or of one of the Baltic’s subsidiaries. The BEISL Governance Council Board meets at least once a quarter to review matters related to the benchmarks and to make any necessary decisions, conduct reviews of the accuracy and suitability of the benchmarks, and will review annually the independent auditors' reports on compliance with the rules for index production.The Governance Council Board receives advice from staff of BEISL and BEL and invited representatives from the marketplace. BEISL and BEL staff, together with the Market Representatives, attend in an advisory role. At this time those representatives are the Chairmen of the Freight Market Information Users’ Group (FMIUG) (dry) and the FMIUG (wet) as well as the Chairman of the Forward Freight Agreement Brokers’ Association (FFABA) for each of the dry and wet markets and the Chairmen of the Panellist Working Group. These groups are informally constituted bodies which seek to represent the views and interests of market participants. The Chief Executive Officer of the Baltic is invited to attend all meetings of the BEISL Governance Council but does not have a vote on any decisions taken by the BEISL Governance Council. The BEISL Governance Council Chairman will be invited to attend meetings of the board of directors of BEISL where required.