Commodity Exchanges need enhanced legal framework

(VEN) – The Commercial Law came into effect in 2005 and paved the way for future transactions to develop; however, these activities have failed to yield expected positive results.

Buon Ma Thuot Coffee Exchange Centre (BCEC)

Buon Ma Thuot Coffee Exchange Centre (BCEC)

Eight year ineffective development of domestic CEs

In 2006, the government issued Decision 158/2006/ND-CP providing in detail commercial law on future transactions at commodity exchanges (CEs). Based on which, the Ministry of Industry and Trade issued permits to establish two CEs. In September 2010, Ministry of Industry and Trade issued a permit to establish the Vietnam Commodity Exchange (VNX). In March 2011, Buon Ma Thuot Coffee Exchange Centre (BCEC) received Prime Ministerial approval to pilot coffee future transactions.

However, future transactions at these CEs have failed to yield positive results as seen with low rates of matched transactions. For example, BCEC, despite its continual efforts last year, registered 2,722 lots of coffee on matched future transactions, equivalent to 5,444 tonnes of coffee.

In 2004, several banks began to act as secondary broker for domestic businesses to participate in international CEs, especially in future transactions of Robusta coffee. However, according to the State Bank of Vietnam’s statistics, during the 2004-2012 period, all the nine involved banks registered future transactions worth of US$23.136 billion.

Director of Ministry of Industry and Trade’s Domestic Market Department Le Viet Nga said “We need to rapidly prepare and promulgate the futures contract regulations in order to regulate future transactions in Vietnam in all aspects.

According to Director of Ministry of Industry and Trade’s Domestic Market Department Le Viet Nga, future transactions at domestic CEs are seen in stagnancy, less attractive to investors, and low liquidity. In addition, many investors are participating in CEs for financial speculation motive not for commodity price insurance.

Issues at domestic Ces and suggested solutions

According to Le Viet Nga, CEs in Vietnam are newly established and less experienced in things related to future transactions such as organization mode, regulations, and operational mechanism, while the CE legal framework proves incomplete.

Moreover, most CEs are encountering difficulties in finding out information on domestic and international commodity markets as there are few organizations and institutions in charge of collection analysis and provision of commodity news, especially agricultural produce.

According to Le Viet Nga, in order to better develop domestic CEs and boost future transactions, state authorities should further improve inspection of CEs in order to ensure a stable operation and development at these CES, along with consolidating the CE legal framework, technical infrastructure, risk management mechanism, and incentives for future transactions.

“It is expected this year, the Ministry of Industry and Trade will issue two new circulars. The first provides regulations for merchants and CEs to participate in future transactions abroad while the second stipulates technical conditions and criteria that domestic CEs should reach in order to ensure effective management of electronic commerce,” she added./.

By Hoang Chau

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