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Emerging Commodity Exchanges in a Globalized Economy
UNCTAD, Commodities Branch Leonela Santana-Boado
Role of the Commodity Exchange: When is it useful to start the creation of a commodity exchange?
Role of the Commodity Exchange: What does an exchange provide?
Transparency in prices Everybody can know at what price is each product sold Avoid manipulation, provide a benchmark price for transaction Reduces cost transaction Everybody is in the same place, no need to look for buyer or seller Provides price discovery Sorry, I only deal with love affairs, look at the commodity exchange What will be the price of Robusta coffee next month?
Role of the Commodity Exchange:Why Have a Commodity Exchange?
Through the exchange
Reduce counterparty risk, increase security. It’s the most competitive trading mechanism available It gives a competitive price quote Increases sources of finance Allows price risk management
The development of a commodity exchange; preconditions
I will reach it A real willingness from politicians Sound infrastructures A sound legal framework A real interest from exporters, traders and producers
The development of a commodity exchange; settings
Telecommunications between traders and the trade floor And now our daily report on wood prices quoted at the exchange Clearing house floor controls Trade floor Availability of information through medias Brokers ’ floor Building settings Allow the existence of the exchange and its practices, provide incentives to deal in the exchange Law modification
What would be the components of a detailed action plan
1 Necessary infrastructure:
trading room
many telephones
weighting and quality control equipment
a system to record prices 4 Contract formulation including:
the minimum quality acceptable
discount or premium if quality is lower or higher
traded quantity
delivery conditions
procedures to follow in case of dispute 2 Trading rules:
choose the right language for the orders
best bid/offer should be automatically accepted
register the deal immediately on standard form 5 3 Exchange organization / rules to determine:
formal criteria for access
financial guarantee
which staff
the trading period Need to be trained:
those active on the exchange
exchange officials
exchange users outside the exchange
create some awareness among local bureaucrats and politicians
Roles of Government and International Organisations
Motivate producers to deal through the exchange Arrange that quotas for low-tariff entry of selected products into other countries are traded through the exchange Tax speculation and hedging differently Do not change price policy too often In building infrastructure In providing training and spreading information In the design of contracts For reliable trading system, prices, contracts, brokers and traders For reliable quality specifications and warehouse receipts