Emerging Commodity Exchanges in a Globalized Economy

UNCTAD, Commodities BranchUNCTAD, Commodities Branch

Leonela Santana-BoadoLeonela 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 pricesTransparency in prices

Everybody can Everybody can know at what price know at what price

is each product is each product soldsold

Avoid Avoid manipulation, manipulation,

provide a provide a benchmark price benchmark price for transactionfor transaction

Reduces cost transactionReduces cost transaction

Everybody is in the Everybody is in the same place, no need same place, no need to look for buyer or to look for buyer or

sellerseller

Provides price discoveryProvides price discovery

What will be the What will be the price of Robusta price of Robusta

coffee next coffee next month?month?

Sorry, I only deal Sorry, I only deal with love affairs, with love affairs,

look at the look at the commodity commodity exchangeexchange

BuyerBuyer SellerSeller

Role of the Commodity Exchange:Why Have a

Commodity 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

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

Through theThrough the exchangeexchange

The development of a commodity exchange;preconditions

A real willingness from politiciansA real willingness from politicians

A sound legal A sound legal framework framework

Sound infrastructuresSound infrastructures

A real interest from exporters, A real interest from exporters, traders and producerstraders and producers

I will reach itI will reach it

The development of a commodity exchange;settings

And now our daily And now our daily report on wood report on wood

prices quoted at the prices quoted at the exchangeexchange

Availability of information Availability of information through mediasthrough medias

Building settingsBuilding settings

Clearing house floorClearing house floor

Telecommunications Telecommunications between traders and the between traders and the

trade floortrade floor

Trade floorTrade floor

Brokers ’ floorBrokers ’ floor

controlscontrols

Law modificationLaw modificationAllow the existence of the exchange and its practices, Allow the existence of the exchange and its practices, provide incentives to deal in the exchangeprovide incentives to deal in the exchange

What would be the components of a detailed action plan

Necessary infrastructure:Necessary infrastructure:

trading roomtrading room

many telephonesmany telephones

weighting and quality weighting and quality control equipment control equipment

a system to record pricesa system to record prices

Trading rules:Trading rules:

choose the rightchoose the right language for the orders language for the orders

best bid/offer should bebest bid/offer should be automatically accepted automatically accepted

register the dealregister the deal immediately on standard immediately on standard form form

Need to be trained:Need to be trained:

those active on the exchangethose active on the exchange

exchange officialsexchange officials

exchange users outside the exchange users outside the exchange exchange

create some awareness amongcreate some awareness among local bureaucrats and politicians local bureaucrats and politicians

Contract formulation including:Contract formulation including:

the minimum quality acceptablethe minimum quality acceptable

discount or premium if quality is discount or premium if quality is lower or higher lower or higher

traded quantitytraded quantity

delivery conditionsdelivery conditions

procedures to follow in case of procedures to follow in case of disputedispute

11 22 33

44 55

Exchange organization / Exchange organization / rules to determine:rules to determine:

formal criteria forformal criteria for access access

financial guaranteefinancial guarantee

which staffwhich staff

the trading periodthe trading period

Roles of Government and International Organisations

Tax speculation and hedging differentlyTax speculation and hedging differently

Do not change price policy too oftenDo not change price policy too often

In building infrastructure In building infrastructure

In providing training and In providing training and spreading information spreading information

For reliable quality specifications For reliable quality specifications and warehouse receipts and warehouse receipts

For reliable trading system, prices, contracts, For reliable trading system, prices, contracts, brokers and tradersbrokers and traders

In the design of contractsIn the design of contracts

Motivate producers to deal through the exchangeMotivate producers to deal through the exchange

Arrange that quotas for low-tariff entry of Arrange that quotas for low-tariff entry of selected products into other countries are traded selected products into other countries are traded through the exchangethrough the exchange

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