Ukrainian Futures Market depends on government support
The Ukrainian Futures Market ,the country`s first futures exchange, will start operations in April 2004. The exchange will begin by trading agricultural products, and, later, dairy products. Ukrainian Futures Market president Leonid Kozachenko said that, down the line, energy supplies might be traded, but it is unlikely it will ever trade currency.
The Futures Market was created in January of this year by 44 banks, agriculture and energy firms, and was scheduled to begin in June. The arrest in March of Kozachenko, the deputy prime minister for agricultural policy, and the summer’s grain crises halted preparations to launch the exchange.
Kozachenko was accused of taking bribes and abusing his office, a charge reportedly based on the fact that he allowed underpriced grain exports, which caused domestic producers to lose an estimated Hr 1.5 billion. He stayed in jail until June of this year. The court hearing of Kozachenko’s case is planned for October.
Halina Shevchenko, general director of the Ukrainian Futures Market, said that Kozachenko’s absence caused delays in launching the exchange, as the board needed him present to finalize some issues. But Kozachenko said the main reason for delay was a lack of governmental support for the market. He said that the government’s policy of regulating the agricultural sector prohibits futures trading of agricultural products.
The government was repeatedly criticized by private companies for forcing farmers and milling enterprises to decrease grain and flour prices. The lower prices were an attempt to mitigate the crises that flared up in July as a result of the poor grain harvest.
“Is it possible to launch a futures exchange under severe administrative regulation on the grain market? No. Futures exchange can exist only under conditions of total liberalization of the market,” Kozachenko said. “It is possible to trade only spot contracts today, and even those mechanisms should be improved.”
Kozachenko said the market is ready to conduct auctions in October, and to trade spot contracts in November.
“We have all the necessary resources. But to start the futures trade, we still need to do a lot of work,” he said.
Among the major tasks still remaining are the elaboration of amendments to the laws on exchanges and taxes, the training of specialists, and education of farmers about futures trading.
Kozachenko said that $14-15 million were required to launch the exchange, which founders expect to receive from international organizations and funds.
“It’s possible to get the money. We expect to receive grants, but don’t plan to take out loans,” Kozachenko said.
About 60 percent of this sum will be spent on elaborating the laws and training specialists, Kozachenko said. The rest will be used for equipment.
He said that the exchange has already signed an agreement with the Canadian International Development Agency to finance work on the legislature, and to train specialists. The exchange’s board is also negotiating to obtain assistance from the U.S. government to train Ukrainian officers involved in regulating futures market activity.
According to Kozachenko, Ukrainian Futures Market specialists will work together with representatives of the National Bank to create a clearinghouse to monitor finances and guarantee fulfillment of futures contracts. The clearinghouse will theoretically operate separately from the exchange, but the exchange may own up to 30 percent of the clearinghouse.
Kozachenko said creating a futures market and insuring harvests will minimize risks to farmers, and encourage banks to loan them money.
“Banks will give loans to farmers with pleasure, because agricultural risks will be secured with liquid instruments: insurance and hedging of risks,” he said. “It will have a positive effect on the agricultural market and increase the flow of investments.”
“If we work actively, we’ll be ready to start futures trading in April or June of next year. But it all depends on the state. If there’s not support from the government, futures trading won’t be introduced,” said Kozachenko.
