Transcript ECX… An Idea Whose Time Has Come There is nothing so powerful as an idea whose time has come… Victor Hugo.

ECX…
An Idea Whose Time
Has Come
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There is nothing so powerful as an
idea whose time has come…
Victor Hugo
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Why ECX?
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Because there was a problem….
HIGH CONTRACT DEFAULT
UNRELIABLE SUPPLY
VOLATILE PRICES
POOR QUALITY
UNRELIABLE TRADING PARTNERS
POOR INFORMATION
UNREGULATED ACTORS
UNCOORDINATED MARKETS
HIGH COSTS, HIGH RISKS
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What was needed.. A Market Solution
 Commitment to free market principles
 A more reliable way to connect buyers and
sellers in our market
 An efficient way to discover market prices
 A way to level the playing field by providing
market information to all
 A means to empower the farmer
 A way to incentivize better quality
 A way to eliminate contract risk
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The ECX Solution
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What is an Exchange?
 A neutral trading system that reliably and
efficiently connects buyers and sellers
 A means of setting and enforcing the
“Rules of the Game” so that all actors can
participate fairly and transparently
 A service to the market: a 3rd party that
takes on the risk from both sides of the
trade
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ECX…An idea whose time has come
 As Ethiopia is poised to transform its agrarian
economy, so too must Ethiopia’s marketing system
take the country into the new Millennium.
 It is time to enter the modern age of globally
connected trading systems, relying on technology
and know how, while tailored to Ethiopia’s realities
and conditions.
 It is time to forge a new partnership between the
private and the public in the new arena created by
market liberalization.
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The Vision
The vision driving the Ethiopia
Commodity Exchange (ECX) is to
revolutionize Ethiopian agriculture
through a dynamic, efficient, and orderly
marketing system that serves all.
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The Exchange concept is not new
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Why Ethiopia gains
 Commercialization of smallholder agriculture is
core pillar of poverty reduction strategy
 Need to capitalize on gains of recent rapid
economic growth (past 5 years)
 Large domestic market, 2nd largest maize
producer in Africa
 Rapid export growth in key commodities
 A better functioning domestic market is key to
sustaining and scaling up growth
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Impact on smallholder farmers?
 Power and participation  Farmers are better able
to negotiate prices given market transparency
 Quality Farmers are able to get market premium
for value added to the product (post-harvest handling)
 Market access:  Farmers are not restricted or
captive to local market, can access national market
 Risk management  Farmers can lock in prices
through futures contracts
 Planning Farmers can use futures prices for planting
decisions
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Current agricultural market structure in
Ethiopia
SMALLHOLDER (SS) 95%
RURAL
ASSEMBLERS
STATE FARM (SF)
COOPS
WHOLESALERS (SURPLUS)
COMMERCIAL (CF)
EGTE
EXPORTERS
PROCESSORS
BROKERS
WHOLESALERS (DEFICIT)
FOOD AID AGENCIES
RETAILERS
CONSUMERS: DOMESTIC
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Structure with Exchange
SMALLHOLDERS
ASSEMBLERS
STATE FARM
COOPS
COMMERCIAL (CF)
EGTE
WHOLESALERS (SURPLUS)
COMMODITY EXCHANGE
EXPORTERS
WHOLESALERS (DEFICIT)
PROCESSORS
FOOD AID AGENCIES
RETAILERS
CONSUMERS: DOMESTIC
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An Ethiopian Exchange for Ethiopia
Technical design started in 2006:
Based on extensive global best practices
review and analysis
 Engaged in extensive stakeholder
consultation and buy-in
 Building a tailored solution, not a cut-andpaste model
 Committed to continuous learning and
flexibility
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What is ECX?
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ECX is a marketplace that serves all
market actors
The ECX marketplace brings order,
integrity, transparency, and
efficiency to the market
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How does ECX bring order?
Through an organized trading platform
Through formal rules and procedures
Through standardized contracts and
standardized products
Through a system of Membership based
participation
Through monitoring and enforcement of
compliance to the rules
Through managing risks to the market
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How does ECX bring integrity?
Through grading and certification of the
quality and quantity of products traded
Through warehouse receipting of
commodities traded
Through enforcing fair competition and
ethical business conduct
Through clearing all payments between
buyers to sellers
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How does ECX bring transparency?
Through a system of industry-accepted
product grades and standards
Through rapid and reliable dissemination of
market information to all actors
Through enforcing disclosure and audit
reporting requirements for its Members
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How does ECX bring efficiency?
Through use of information technology to
automate the End-to-End system from
warehousing to trading to clearing and
settlement of payments to delivery of commodity
Through a centralized trading platform offering
low-cost service to all market users
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ECX…A broad market platform
 Member certification and management
 Quality standard setting and certification of
domestic coffees
 Electronic warehouse receipting and Central
Depository
 Inventory management (and inventory
financing facilitation)
 Open-outcry and electronic trading in spot,
forwards, futures delivery contracts
 Clearinghouse (central counterparty)
 Market data dissemination
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ECX…A flexible market platform
 Able to accommodate large and small
market actors through small lot sizes and
different classes of membership
 Able to accommodate origins and
diversity of coffees through large number
of highly differentiated contracts
 Able to accommodate local specificities in
market with internally developed IT system
that is continuously in design
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ECX…A powerful market solution
 Highly professional grading system
 Efficient daily trading of hundreds of
commodity class-grade combinations
 Zero contract, payment, delivery default
 Clearing of payments within hours to the
seller
 Transmission of market data in seconds
around the country and world
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AND CLIENTS
MEMBERSHIP
MANAGEMENT
MARKET
SURVEILLANCE
DATA FEEDS
MARKET DATA
PROCESSING
PRICE TICKERS
WEBSITE
MEMBERS
DATA
CENTER
WAREHOUSE GOODS
RECEIVING (QUALITY AND
QUANTITY
CERTIFICATION)
CLEARING AND
SETTLEMENT
CENTRAL
DEPOSITORY OF
WAREHOUSE
RECEIPTS
TRADE ORDER
MATCHING AND
RECONCILIATION
BANKS
WAREHOUSES
REGULATORY BODY
Integrated ECX Technology Solution
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How it works
Farmer, cooperative, or
trader brings product to
Exchange-operated
warehouse
ECX Back Office
ECX Trading Floor
Seller instructs
broker to post offer
The warehouse draws
samples and issues a
Product Certificate and
Warehouse Receipt
Buyer deposits funds
into settlement account
in Exchange partner
bank
Order
Matching
Buyer instructs
broker to post bid
• Market information
transmission
•Clearing and settlement
•Market surveillance
•Risk management
• Member database
•Disaster recovery
•Data center
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The Liability Chain
Seller of
product
Buyer of
product
Order
Warehouse:
Trading System:
Product certification
Warehouse receipt
Order Matching
MEMBER
Order
MEMBER
Bank:
funds
Clearing and
settlement
Fund transfer
receipt27
Beyond agriculture: From a sack
of grain to a sack of money
Information
Technology
Finance
PRODUCT
Warehouses=Banks
Power the system
Legal Infrastructure
Self-regulatory
Electronic trade
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Who owns and manages
ECX?
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ECX has a unique institutional set-up
 ECX is a non-profit autonomous commercial
enterprise (company) established by its own law,
that can only reinvest its profits in its scaling up and
innovation (no dividends to investors).
 ECX is a demutualized Public-Private undertaking in
that
 Government owned entity (initially) but
 Private Members permanently own Membership
seats
 Jointly govern ECX through a joint Board of
Directors
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ECX management
By law, ECX management is separate from either
its ownership or its membership
ECX is managed as an independent and
autonomous entity
ECX has a professional management that reports
to the Board of Directors
An ECX Management Transition Plan enables
internationally recruited professionals to
manage and build national capacity for the first
three years
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ECX Management Team
 Chief Executive Officer: Eleni Gabre-Madhin
 Chief Information Officer: Solomon Edossa (formerly Accenture)
 Chief Business Operations Officer: Aman Adinew (formerly DHL,
Northwest Airlines)
 Chief Compliance Officer: Yohannes Assefa (formerly Washington
securities lawyer)
 Chief Market Data Officer: Ahadu Woubshet (formerly Fannie Mae)
 Chief Clearing and Settlement Officer: Keith Thomas (formerly
BACS)
 Chief Risk Officer: Kadri Alfah (formerly London Financial Exchange
 Chief Finance Officer: Yonas Berhe (formerly Wells Fargo)
 Senior Manager, Business Development: Ben Aschenaki (formerly
Merrill Lynch)
 Senior Manager, Trading Operations: Bharat Kulkarni (formerly
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MCX India)
The ECX “Eco-System”
Laws and Regulations
Policy and Strategy
MINISTRY
COMMODITY EXCHANGE AUTHORITY
National Exchange Actors
Association
Arbitration Tribunal
Market Information
EXCHANGE
MEMBERS
Trading System
Clearing and
Settlement
Exchange Warehouses
Grade
certification
Warehouse
receipt
Exchange Clearing Banks
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ECX….Looking Back on A
Year of Challenges and
Triumphs
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“There is nothing more difficult to take in hand,
more perilous to conduct, or more uncertain of
its success, than to take the lead in the
introduction of a new order of things”
Machiavelli
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Challenges
 Transition from old to new systems:
need for continuous learning,
communication, adjustment, fine-tuning.
 Global commodity and financial crises
 Domestic economy concerns: severe
inflation, production shortfalls, chemical
crisis (coffee)
 Coffee crisis
 Maintaining neutrality and system integrity
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A word on coffee crisis
 Coffee is life
 Coffee crisis not related to ECX
 weather, foreign exchange, Japan, credit
crunch, weak exports, regulatory crackdown
 Coffee crisis related to ECX
 system burden at warehouse, specialty
market concerns, market learning and
adjustment
 The worst is behind us
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Early Achievements on the ground
 496 Trading Members (99% private)
 12% participation by smallholder cooperatives
(>250,000 farmers)
 7 partner banks integrated into first ever
electronic national payment system
 US$ 300 million trade (coffee, sesame, beans,
wheat, maize) without single default
 Real time price transmission (2-4 seconds)
 Improved quality impact on exports
 Improved returns to farmers
 Intangibles: attitudes, transparency, HOPE
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What the Future Holds
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

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More commodities, more services
Grains (sesame, beans, teff)
Specialty coffee direct trade
SMS/IVR market data system
Warehouse receipt financing (w/IFC)
Online trading
Futures/forwards contracts
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Finally, ECX is creating new growth
opportunities and spillover impacts
Technology:
mobile telephony, satellite radio, IT services
Financial sector: new financial products
tailored to small market players
 Services:
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




Transport
Packaging/Sacking
Logistics
Quality Certification, Member licensing
Insurance
Academic: information analysis, research
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Aweke Teshome
Farmer, member of Wedera Union (Farmers Union)
“Now we are members of the ECX and are happy that big volume
sales can take place in a risk free environment. Additionally, as a
result of our involvement with the ECX our knowledge regarding the
concept of grading has increased and our resolve to produce quality
products has strengthened.
We are so happy to have a market which is
transparent and risk free.”
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The future is here…
YICHALAL !!
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WWW.ECX.COM.ET
+251 -11- 554- 7001
[email protected]
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