04.08.2021

The commodity market has received new rules and new performance standards. Arsen Ilin, the Commissioner of the National Securities and Stock Market Commission, has told in the «Minfin» column how the regulation is changing and how the market and the state will benefit from these exchanges.

What may lie ahead for commodity exchanges

The commodity market in Ukraine has its own history, its own heroes and its own failures. Until recently, the trading commodity structure had more than 400 platforms where commodities were traded in various volumes. It is inappropriate to say about quality, fair pricing and settlement guarantees on such platforms, as there was unhealthy competition between exchanges, which did not produce good results for the financial system of Ukraine.

Along with the phenomenon of a commodity exchange, there were stock exchanges on capital markets, which also needed their performance to be modernized and required high standards, and for which the conditions of existence also changed.

The Law of Ukraine On Amending Certain Legislative Acts of Ukraine on Facilitation of Attracting Investments and Introduction of New Financial Instruments “occurred” with all of us, and as a result of this we have obtained the new Law of Ukraine On Commodity Exchanges, which came into force on the 1st of July this year.

What is new

The Law states that all the standardized commodities must be traded on the exchanges which are licensed by the NSSMC, if they are going to continue operating as a commodity exchange.

Anyone may be licensed to operate as a commodity exchange and enter the trading market. For this purpose, one must comply with the requirements of the Law and the provisions specified by the NSSMC for such activities. There are no concealed moments in obtaining a license, everything is quite transparent and clear.

Only those who have obtained the appropriate license for organizing commodity trading on commodity exchanges from the regulator can call themselves as a commodity exchange, organized market operator, etc. Again, everything is quite simple here: if you want to be called an exchange, get an appropriate license and work.

The question of the number of such trading platforms is not important, the main thing is the quality of everything that will be happening within this structure. A licensed commodity exchange must monitor exchange trading and control whether the participants comply with the rules of the exchange, in particular, with the purpose of preventing manipulation and insider trading on the commodity exchange.  

In its turn, the NSSMC will control the equality and working conditions of the existing licensed exchanges in the financial system of the country.

What an exchange gives

An exchange can be an effective tool for transparent pricing and guaranteed execution of transactions regardless of the supplier of exchange commodities on its platform.

Specifically in case of a monopoly, when the exchange commodity is in a single pair of hands and affects market pricing, such a symbiosis is appropriate. The role of the exchange is that it can distinguish the actions of such a monopoly and the trading itself, because it acts as a guarantor of execution of transactions and settlements. One can come to this platform for a fair, competitive price for one’s commodity, which is at the core of market relations of all the participants.

Due to the high standards of the exchange performance and the design of the internal trading processes, the influence of the monopoly is offset.

Who is already licensed

The NSSMC has recently issued two licenses to the Ukrainian Energy Exchange – for the activity of organization of trading in commodities on commodity exchanges and for the clearing activity of determining obligations.

This exchange has became the first commodity exchange to receive licenses under the new legislation in force. It has undergone the process of reorganization of its structure and was preparing for this event for about six months.

It is important that though the Law №738 was adopted two years ago, not all of its provisions came into force immediately. Therefore, only in July this year, the new legislation on commodity exchanges came into force. That is, market participants have had about two years to get prepared for the expected changes and make the decision whether they need to stay on the market.

The market community has been given a legislative time slack to solve the issues of their licensing. But, unfortunately, only now everyone has begun to pay attention to it. This is not a very good “trend”, but it has been followed by most market participants. Therefore, now we have only one licensed commodity exchange, which has been preparing for this process in advance.

We are waiting for the initiatives from exchanges that seek to run fair business, are ready to comply with high standards and organize fair pricing for Ukrainian commodities in our country.

Packages of documents of other exchanges, which have expressed willingness to remain on the market and undergo the licensing procedure according to the new rules, have been submitted to the NSSMC for approval. We are working upon these documents now.

Source: Minfin

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