EDB studies the development of commodity exchanges in the SES member states

Almaty, 19 April 2013. Establishment of common commodity market of Russia, Kazakhstan and Belarus in the form of the Customs Union (CU) and enhanced opportunities to boost mutual trade suggest the next step in the advancement of integration agenda. This step is about addressing the issues of CU member-countries’ cooperation in organised commodity markets. It is one of recommendations suggested by the authors of the report SES Commodity Exchanges Development Prospects published by Eurasian Development Bank (EDB). The report summarises main findings of a joint project with the International Association of Exchanges of the CIS countries (IAE CIS). The report has been prepared by the EDB Research Department experts with active participation of commodity exchanges-members of the IAE CIS Commodity Markets Committee. It addresses several urgent issues in commodity exchanges development in the Single Economic Space (SES).

«Although the share of exchanges in the total wholesale trade in the SES is small yet, the region is in need of a modern commodity exchange,» believe EDB experts. «The SES members as exporting countries with profound raw-material and agrarian capacity, require more effective and transparent price formation mechanisms domestically.» Development of commodity exchanges necessitates improvements in the regulatory framework and market infrastructure.

A comprehensive discussion of the potential for cooperation in organised commodity markets includes addressing the development challenges and constraints of the SES countries’ commodity markets. An overview of Russian and Kazakh commodity exchanges development has shown significant differences in approaches. While in Russia exchanges were accommodating to the developments in economic environment and were upgrading via the introduction of e-trade in futures, in Kazakhstan the process suspended for quite long at trading in physical commodities. Another significant difference points that the Kazakh market, until recently had no economic interest in commodity exchange for trade facilitation. A notable feature in both countries is close interest by governments in exchanges’ activities in the absence of targeted state support. Another similarity is that commodity market in both countries is permanently lagging behind stock market and banking sector in its development. This is a neglect, especially provided that global industry trends demonstrate that role, functions and commodity exchanges themselves are transforming into financial institutions.

A comparative review of legislation governing commodity exchanges’ functioning in Belarus, Kazakhstan, Russia and Ukraine outlined the existing impediments to inter-exchange cooperation in organised commodity markets. The study concludes that existing regulation is not conducive to international cooperation among exchanges. Varying level of coverage and depth of national legislation on commodity markets and exchanges in SES countries impose serious barriers to harmonisation of regulation for inter-exchange cooperation.

The report suggests that systematic work should be undertaken to elaborate a comprehensive model of an interstate commodity market of the SES and CIS countries, which would be governed by common operating principles and regulations covering access of professional players, requirements for procedures and assets, transparency, guarantees and risk management.

Unification of the respective national legislations requires addressing a profound range of issues with the involvement of regulators, commodity exchanges, industry associations, such as IAE CIS, and other stakeholders concerned. The authors believe that commodity markets and exchanges in SES countries would benefit of an oversight and coordination authority similar to those on stock market regulation in CIS and EurAsEC.

The e-version of the report is available at EDB’s website:

https://eabr.org/analytics/

Additional Information

Eurasian Development Bank is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth and the expansion of mutual trade and other economic ties in its member states. EDB’s charter capital exceeds US $1.5 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan. Read more at https://www.eabr.org.