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Ethiopia: ECX Stretches With Widened Scope

19.07.2017

 | Source:  Addis Fortune; All Africa

The proclamation will enable ECX to manage future, forwarding and managing contracts of non-agricultural products.

The Ethiopian Commodity Exchange (ECX) gets a new scope of engagement in handling hedging (future contracts), forwarding and managing contracts outside of agricultural commodities.

An amended proclamation on the ECX that was approved by Parliament two weeks ago stated that the three new operations of ECX would be launched after having additional legal frameworks.

A future contract is a price risk management that is used to minimise the risk involved in commodities trading; this system offers protection from declining prices for the farmers. A forward contract is an informal agreement traded through a network at a specified price at a certain future date.

Both futures and forwards allow farmers and traders to buy or sell at a particular time and given price, but forward contracts are not standardised or traded on an exchange, but rather are private agreements that may vary across contracts.

"The amendment came to the scene after making sure of the readiness of the country for these trading systems," said Olero Opew, director general of the Ethiopian Commodity Exchange Authority.

These three types of trading did not formally exist in the country previously. ECX has only been engaging on-the-spot trading since its establishment eight years ago.

This shows that the country is moving in establishing a derivatives market. These types of contracts will help to ensure price predictability of commodities, according to Abdulmenan Mohammed, a financial expert with 15 years of experience in auditing, accounting and finance.

One of the added sub articles in the amended proclamation declares that ECX can manage future contracts and forward contracts in agricultural commodities. And the exchange shall be provided in the directive to be issued by the Authority and rules of exchange. Read more on All Africa.

Source: All Africa