FAQS

Bourse Africa is a spot and derivatives exchange offering multi-asset class trading to serve markets across Africa providing an efficient, secure, transparent and trustworthy exchange mechanism (and supporting institutions) to facilitate price discovery and mutually beneficial trade, financing, risk management and investment between participants from across African markets, and between African and international participants.

A Pan-African derivatives exchange, central counterparty clearinghouse and depository platform: :

• Futures and options contracts on African currencies and commodities – agriculture, energy, metals, minerals and other commodities – as well as other asset classes
• Traded via Bourse Africa’s pan-African futures market, located in Botswana
• Initial product suite comprises USD-denominated cash-settled contracts on currency pairs and commodities contracts on cocoa, cotton, crude oil, maize and gold; Africa-deliverable or cash-settled against an appropriate African benchmark, per market requirement
• A broad array of hedging, investing and arbitrage possibilities for African and international users.

A network of national and regional multi-asset derivatives and commodity spot exchanges, central counterparty clearinghouses and depository platforms:

• Multi asset derivatives: Local currency-denominated derivatives contracts on national or regional assets - commodity, currency and other asset classes
• Commodity spot: Contracts for immediate delivery on African commodities – agriculture, energy, metals, minerals and other commodities
• The network provides powerful synergy to: (i) fast track market development into national and regional markets through cross-marketing and inter-exchange liquidity flow, (ii) to reduce transaction costs to globally competitive levels, and (iii) to reap technical and operational synergies through common utilisation of a shared technology hub.
• Each exchange is fully localised, with supervision by the national regulator, trading national or regional assets with local delivery, cleared by a nationally-domiciled clearinghouse via banks present in the local market.
• Venues for hedging, investment and arbitrage on national and regional assets, backed by powerful procurement and delivery solutions through the commodity spot exchange, which adds a disciplined and guaranteed settlement cycle to organise and enhance the physical markets.

Bourse Africa will also provide end-to-end solutions for management of the physical commodity along the value chain, improving efficiency and facilitating improved access to finance, including warehouse receipts, market information and capacity building solutions.

For the first time, Bourse Africa provides a robust institutional forum for cross-border trade, clearing and risk management of African commodities and currencies.

Bourse Africa is reducing transaction costs for African producers, processors, traders and purchasers to trade with their counterparts in other African countries. To date, trade between entities situated in different African markets has often been expensive and complicated. This has hindered growth in cross-border flows, impeded Africa’s long-standing efforts to integrate its economies, and obstructed efforts to reduce poverty among commodity-dependent communities. Therefore, new cross-border trading opportunities made possible by Bourse Africa offers a paradigm-shift that can have many positive benefits for Africa and African commodity-dependent communities.

African market participants face great difficulties in accessing international markets for a number of reasons:

• Access to international markets has become more constrained as a result of stricter 'know-your-customer' requirements and tighter lines of credit offered by intermediaries in developed markets
• Contracts traded in international markets can be too large for developing country requirements
• Controls on cross-border flows of currency, capital and commodities can severely impede the possibility of participation in international exchanges
• Exposure to exchange rate volatility can severely limit the possibility of, or benefits from, hedging
• Basis risk between domestic and international markets can be high i.e. there can be a wide divergence between price development in local physical markets and international futures markets that may undermine the effectiveness of hedging

However, Bourse Africa now offers the possibility for physical delivery, procurement, price discovery, price risk management and investment on a range of African commodities (and on other asset classes shortly thereafter). This will enable all agents/participants in African commodity supply chains to transact in their home jurisdiction, through local brokers, with African delivery locations, and a central counterparty that guarantees performance of all contracts in the event of default by another market participant. Consequently, all participants in African commodity supply chains will finally be able to efficiently deliver and procure African commodities as well as managing their exposure to the notorious commodity price volatility that has condemned many to a condition of persistent and endemic poverty.

Stay posted to developments that will be announced in the next 12 months on the Bourse Africa website as the Bourse Africa team brings to fruition this exciting initiative.

For prospective market users: Bourse Africa will soon commence outreach and training programmes across Africa designed to build awareness of the opportunities its services enable and build the capacity of African citizens to use those services to its advantage.

For prospective partner organisations: Bourse Africa is reaching out to leading agents/participants in the commodity and financial ecosystems, to enhance its service offering and deliver win-win propositions. Strategic partnerships are being formed with:

• Consortiums to operate the national and regional exchanges and clearinghouses in the various African countries
• Financial institutions
• Industry associations
• Collateral management agencies
• Public & regulatory agencies
• Civil society organisations
• Academic bodies
• The international community
  
  

If you are interested in forming a partnership with Bourse Africa, please contact us at info@bourseafrica.com

Bourse Africa will be open to all individuals and companies, both in Africa and internationally, subject to regulatory approval in your home jurisdiction and compliance with standard investor protection and ‘know your customer’ procedures.

Bourse Africa is jointly owned by the Financial Technologies Group together with a number of eminent pan-African institutions.

The promoter of Bourse Africa is the Financial Technologies Group (www.ftindia.com). The Financial Technologies Group is among global leaders in offering technology intellectual property and domain expertise to create and trade on next generation financial markets. It is also the promoter of nine other commodity and financial exchanges – six in India including Multi Commodity Exchange of India, (www.mcxindia.com) and three outside in India including the Dubai Gold and Commodities Exchange, (www.dgcx.ae), The Singapore Mercantile Exchange, (www.smx.com.sg) and the Global Board of Trade, Mauritius, (www.gbot.mu)

Bourse Africa has recently announced its plans to launch in mid-2012

For more information, please contact: info@bourseafrica.com

Financial Technologies (India) Limited, the flagship company of the Financial Technologies Group, is among global leaders in offering technology IP (Intellectual Property) and domain expertise to create and trade on next generation financial markets that are transparent, efficient and liquid, operating across all asset class including - equities, commodities, currency and debt.

Its relentless focus since 1995 as a super-specialist provider of technology intellectual property and domain expertise for financial markets, has helped it to establish itself among global leaders in creating successful exchanges in markets that are either underserved or economically unviable to be served by traditional players.

Its highly robust and scalable exchange and trading technology platform, coupled with deep domain expertise, gives the Financial Technologies Group a decisive edge in driving mass disruptive innovation at speed and cost of execution that are unmatched in the financial services industry.

Financial Technologies’ flagship product suite, ODIN™, has an estimated 90% market share in India for trading in securities and commodities with an installed base of over 320,000 trading licenses. Likewise, DOME, Financial Technologies’ market leading product suite for exchange solutions is powering globally dominant exchanges like Multi Commodity Exchange (MCX), Dubai Gold & Commodities Exchange (DGCX), Indian Energy Exchange (IEX), Global Board of Trade, Mauritius (GBOT) Singapore Mercantile Exchange (SMX) and others.

The technology IP and domain expertise forms an integral part of our business model, with software solutions, exchange and ecosystem ventures forming the three cornerstones of our offerings that enable us to accelerate the economic expansion of the ecosystem in which we operate and makes our business model virtually self fuelling.

• Financial Technologies (India) Limited (FTIL):
  www.ftindia.com
• Multi Commodity Exchange of India Limited (MCX):
  www.mcxindia.com
• MCX Stock Exchange (MCX-SX):
  www.mcx-sx.com
• Singapore Mercantile Exchange (SMX):
  www.smx.com.sg
• National Bulk Handling Corporation Ltd. (NBHC):
  www.nbhcindia.com
• atom technologies:
  www.atomtech.in
• Audit Control and Expertise (ACE):
  www.ace-group.net
• Dubai Gold and Commodity Exchange (DGCX):
  www.dgcx.ae
• FT Knowledge Management Company (FTKMC):
  www.ftkmc.com
• Global Board of Trade, Mauritius (GBOT):
  www.gbot.mu
• Indian Energy Exchange (IEX):
  www.iexindia.com
• IBS-Forex:
  www.ibsfx.com
• National Spot Exchange Limited (NSEL):
  www.nationalspotexchange.com
• Credit Market Services Limited (CMSL):
  www.cmsl.co.in
• Riskraft Consulting:
  www.riskraft.com
• TickerPlant Infovending:
  www.tickerplantindia.com
• Financial Technologies Middle East (FT-ME):
  www.ft-me.com

While trade is international, currencies are national. International transactions, such as importing and exporting and cross-border investment, are often settled in global currencies. As such currency trading involves the purchase and sale of global currencies to take advantage of movements in exchange rates.

A country’s exchange rate is typically affected by the supply and demand for the country’s currency in the international foreign exchange market. The demand and supply dynamics is principally influenced by factors like interest rate differentials, inflation, trade balance and economic & political scenarios in the country. The level of confidence in the economy of a particular country also influences the currency of that country.

There are several reasons. A rise in export earnings of a country increases foreign exchange supply. A rise in imports increases demand. International demand for the country’s assets (such as bonds and stocks) can heavily influence exchange rates. These are the objective reasons, but there are many subjective reasons too. Some of the subjective reasons are: directional viewpoints of market participants, expectations of national economic performance, confidence in a country’s economy and so on.

A currency futures contract is a standardized version of a forward contract that is traded on a regulated exchange. It is an agreement to buy or sell a specified quantity of an underlying currency on a specified date in future at a specified rate (e.g., USD 1 = BWP 7.50). Lenders, borrowers, importers and exporters can use futures contracts to hedge against foreign exchange risk resulting from their economic activities whilst speculators can trade to try make profit from changes in exchange rates.

(Note: USD is abbreviation for the US Dollar, and BWP for the Botswana Pula).

Currency futures are needed if your business is influenced by fluctuations in currency exchange rates. If you are in, for example, Nigeria and are importing something, you have done the costing of your imports on the basis of a certain exchange rate between the Nigerian Naira and the relevant foreign currency. By the time you actually import, the value of the Naira may have gone down and you may lose out on your income in terms of Naira by paying a higher amount. On the contrary, if you are exporting something and the value of the Naira has gone up, you earn less in terms of Naira than you had anticipated. Currency futures are an efficient tool to help you hedge against these exchange rate risks.

Every business exposed to foreign exchange risk needs to have a facility to hedge against such risk. Exchange-traded currency futures, as on Bourse Africa, are a superior tool for such hedging because of greater transparency, liquidity, counterparty guarantee and accessibility. Since the economy is made up of businesses of all sizes, anything that is good for business is also good for the national economy. Bourse Africa’s currency futures will likely be smaller in scale relative to those typically traded in global exchanges in order to ensure accessibility by Africa’s SME sector.

The exchange-traded futures, as compared to over the counter (OTC) forwards, serve the same economic purpose, yet differ in fundamental ways. Exchange-traded contracts are standardised. In an exchange-traded scenario where the market lot is fixed at a much lesser size than the OTC market, equitable opportunity is provided to all classes of investors whether large or small to participate in the futures market. The other advantages of an Exchange traded market would be greater transparency, efficiency and accessibility. The counterparty risk (credit risk) in a futures contract is eliminated by the presence of a clearing house/ corporation, which by assuming counterparty guarantee, eliminates default risk, further facilitating access to the market for smaller players. Thus, introduction of exchange-traded futures help in overall development of the forex market in the country and complements the OTC forward and swap market.

Bourse Africa will facilitate market access to members and their clients – public sector entities, corporates, financial institutions, SMEs, individuals - from both the African continent as well as offshore. All participants are required to trade via an accredited broker. Your broker will assist you in all matters relating to trading including training, connectivity and compliance issues. Important to note is that all currency contracts will initially be settled in USD. As such all participants will require a USD bank account at one of Bourse Africa’s clearing banks. Bourse Africa will be publishing a list of brokers prior to launch on its website. If you are interested in becoming an accredited broker, email info@bourseafrica.com

Currency futures complement interbank forward markets in many ways. Because currency futures are cleared by Bourse Africa’s Central Counterparty Clearinghouse you do not require credit lines to trade with other participants on the exchange. Legal uncertainty, which often complicates OTC trading in Africa, is removed. Since the contracts are much smaller it will enable you to provide effective hedging solutions to smaller SME clients. Because the contracts are standardised and there is broad participation in the market, liquidity is greatly enhanced.

Bourse Africa will launch several African currency contracts. This will facilitate efficient and liquid intra-Africa currency hedging, such as the Kenyan Shilling against the Tanzanian Shilling, or the Nigerian Naira against the Ghanaian Cedi.

All currency futures will initially be cash settled in US Dollars. This means that even if a participants holds the contract until maturity he or she will not obtain the underlying currency. As such, Bourse Africa’s contracts are “non-deliverable.”

Yes. Bourse Africa’s currency contracts will have a notional size of approximately USD 1000. The contracts will thus be well within the reach of most small traders. All transactions on the Exchange are anonymous and are executed on a price time priority ensuring that the best price is available to all categories of market participant. As the profits or losses in the futures market are also paid and collected on a daily basis, the scope of loss accumulation for participants is limited.

Yes, it does, if you want to invest purely as an investor. You can benefit from exchange rate fluctuations just as you can benefit by investing in equities in the stock market. However, as in the stock markets, you also stand to lose money if the price movements are not in keeping with what you had anticipated. Participating in a currency futures exchange is risky, just as the stock market is. You should therefore be knowledgeable about the currency market if you want to participate as an investor.

On a currency exchange platform, you can buy or sell currency futures. If you are an importer, you can buy futures to “lock in” a price for your purchase of actual foreign currency at a future date. You thus avoid exchange rate risk that you would otherwise have faced. On the other hand, if you are an exporter, you sell currency futures on the exchange platform and “lock in” a sale price at a future date. However, it may be noted that the contract will be marked to market at the daily settlement price and profit or loss will be paid / collected on a daily basis.

Risks in currency futures pertain to movements in the currency exchange rate. There is no rule of thumb to determine whether a currency rate will rise or fall or remain unchanged. A judgement on this will depend on the knowledge and understanding of the variables that affect currency rates. If you are hedging an underlying exposure currency futures act to remove risk from changes in the exchange rate. If you are participating in the currency futures market purely as an investor without an underlying exposure, you stand the gain or lose depending on movements of the exchange rate.

Internationally, exchanges such as Chicago Mercantile Exchange (CME), Johannesburg Stock Exchange, Euronext.liffe, BM&FBOVESPA and Tokyo Financial Exchange provide trading in global currency futures. There are no exchanges which offer currency futures in the majority of African currencies.

Bourse Africa will enable both offshore and onshore market participants to participate in African currency markets. This is not possible on any other exchange. Given the strong focus of Bourse Africa on its core mandate, market participants can expect maximum liquidity for African currencies.

All currency contracts will initially be settled in US dollars. Bourse Africa will subsequently launch complementary currency futures on its national exchanges which will be settled in the local currency.

The trading of currency futures is subject to maintenance of initial, extreme loss, and calendar spread margins with the clearinghouse. The details of the margins levied are mentioned in the respective product’s contract specifications.

Bourse Africa will launch currency futures in a range of African currencies, to be determined in consultation with market participants. Information will be published on the website prior to launch.

A commodity exchange is a forum in which multiple buyers and sellers trade commodity-linked contracts on the basis of rules and procedures laid down by the exchange. In developed countries, and in an increasing number of developing countries, such exchanges typically act as a platform for trade in commodity derivatives contracts, such as futures and options. In other parts of the developing world, a commodity exchange may act in a broader range of ways to stimulate trade in the commodity sector. This may be through the use of instruments other than futures and options, such as the cash or "spot" trade for immediate delivery, forward contracts on the basis of warehouse receipts, and the trade of farmers' repurchase financing agreements (known as "repos"). Alternatively, it may be through focusing on facilitative activities rather than on the trade itself, as in parts of Africa where such institutions play a role in gathering and disseminating commodity market and price information.

A commodity exchange generally incorporates one or both of two types of market:

Cash or ‘spot’ market: The market for buying and selling the physical commodity at a negotiated price. Delivery of the commodity takes place immediately. For exchanges that offer spot trade or supporting activities, its institutional function is to facilitate trade – bringing together buyers and sellers of commodities, and then imposing a framework of rules that provides them with the confidence to transact. Robust procedures for overseeing these transactions can also trigger improvements in the efficiency and infrastructure of commodity cash markets – for example, through the upgrade of exchange-accredited warehousing and logistics infrastructure, the acceptance among market participants of exchange-defined product quality specifications, and the reduction of default levels through intermediation by the exchange in processing and settling contracts.

Derivatives or futures market: Derivatives are financial contracts which derive their value from the underlying asset. The underlying asset can be an equity, commodity, foreign exchange, real estate or any other asset. In commodity derivatives, the underlying asset is the spot price of the commodity. Commodity futures exchanges provide commodity market participants with a means of managing their exposure to commodity price volatility. This is important as world commodity prices are often highly volatile over short periods of time – sometimes fluctuating by over 50% within the same calendar year. Use of derivatives instruments to ‘hedge’ exposure to price risk can bring producers greater certainty over the production cycle whilst enabling processors, traders and purchasers to lock in a margin that can secure them a positive return. This allows those active in the commodity sector to commit to investments that yield longer-term gains as well as increase the viability for farmers and other types of commodity producers to invest in higher risk but higher revenue commodities. Even in the face of a long-term decline in the prices of their commodity, the ability to hedge against shorter-term price movements provides producers with a window in which to adjust production patterns and diversify their risk profile.

A commodity futures exchange may typically offer trade in two types of derivative:

• Futures:
  A futures contract is an agreement between two parties to buy or sell a specified quantity and quality of asset at a certain time in future at a certain price agreed at the time of entering into the contract on the futures exchange.
• Options:
  An option is the right but not the obligation of the holder, to buy or sell the underlying asset by a certain date at a certain price. There are two types of option:
  • Call Options:
    A call option is a contractual agreement which gives the owner (holder) of the option the right but not the obligation to purchase a stated quantity of the underlying asset (commodities, shares, indices, etc) at a specified price (the ‘strike price’), on or before the expiry date.
  • Put Options:
    A put option is a contractual agreement which gives the owner (holder) of the put option the right but not the obligation to sell a stated quantity of the underlying asset (commodities, shares, indices, etc.) at a specified price (called the strike price), on or before the expiry date.

Derivatives are also traded in ‘over the counter’ (OTC) markets, also known as off-exchange transactions. OTC markets comprise transactions undertaken directly between two parties which are not matched by an exchange. Three types of commodity derivative are typically traded in OTC markets:

• Forwards:
  A forward contract is an agreement entered between two parties to buy or sell an asset at a future date for an agreed price. Unlike a futures contract, the terms and conditions of the contract – price, delivery date, quantity, quality - are not standardised. Rather they are customised to the requirements of the parties to the transaction.
• OTC options:
  Similar in principle to exchange-traded options, but with the terms and conditions of the option customised to the requirements of the parties to the transaction.
• Swap:
  A swap is an agreement between two parties to exchange different streams of cash flow in the future, according to a pre-determined formula.

It is noted that a commodity exchange may provide services that facilitate trade as well as, or instead of, directly providing the forum in which multiple buyers and sellers come together. Such services may include registration of trades, clearing of trades, oversight of market participants, and dissemination of market information.

Of particular importance is dissemination of market information arising from trade - the so-called 'price discovery' mechanism of an exchange. As exchange prices come to reflect the known information about the market, they provide an accurate reflection of the actual supply/demand situation in the relevant commodity markets. This provides important signals that market participants can use to make informed production and investment decisions. Furthermore, the availability of a neutral and authoritative price reference can overcome information asymmetries that have often disadvantaged smaller or less well-connected commodity market participants in the past.

Firstly, the usefulness of a commodity exchange lies in its institutional capacity to remove or reduce the high transaction costs often faced by entities along commodity supply chains in developing countries. It reduces transaction costs by offering services at lower cost than would otherwise be incurred by commodity sectors participants acting outside an institutional framework. The way in which commodity exchanges act to mitigate costs is depicted in the diagram below.

Diagram: Features of a typical commodity exchange that acts to reduce transaction costs

Therefore, by reducing the costs incurred by the parties to a potential transaction, a commodity exchange can stimulate trade.

Secondly, the usefulness of a commodity exchange that offers price risk management services can be understood in the context of commodity price volatility. Historically, unfavourable movements in world commodity prices have impeded development in the developing world. Two distinct tendencies have been noted. First, commodity prices have often exhibited sharp volatility in the short-run with significant year-to-year variability (see chart).

Second, there has been a long-run decline in commodity prices, both in absolute terms and also relative to those of manufacturing and services.

The effects of these tendencies have been felt in developing countries at both macro and micro levels:

 

 

• MACRO-LEVEL: At a macro-level, developing countries find that price shocks in key imported commodities, particularly foodstuffs and fuel, can dampen growth, spur inflation and, in some circumstances, provoke political instability. Governments seeking to maintain low and stable domestic prices for these commodities may face increased pressure on their budgets, resources may need to be diverted from other important areas of spending, and levels of overall indebtedness may increase.

  Commodity exporting developing countries find that reductions in commodity export prices - either short-term shocks or long term decline - undermine fiscal stability, exacerbate rural poverty and impair the capacity of governments to develop and maintain long-term investment programmes, particularly those directed towards basic needs provision and infrastructure development. This becomes all the more serious the greater the extent to which a country is dependent on the export of a small number of commodities. Additionally, for Heavily Indebted Poor Countries (HIPC), price volatility may seriously affect the attainability of sustainability ratios (debt-to-GDP, debt-to-exports) which in turn impacts upon the burden of debt service obligations. 

  Taken together, price reductions in key commodity exports combined with increases in the cost of critical imports can also place an enormous burden on a country's balance of payments, with associated effects on the exchange rate at which the national currency trades. Coupled with a long-term decline in the terms of trade faced by commodity-dependent developing countries, this poses severe developmental challenges and undermines efforts to meet international development objectives, such as the United Nations’ Millennium Development Goals.

• MICRO-LEVEL: At a micro-level, unfavourable short-term shocks in the prices of key import or export commodities can undermine the livelihoods of developing country populations where economic activity tends to be dependent on narrow profitability margins and allows minimal room for error in the management of working capital. In particular, it has been demonstrated in academic literature how exposure to price volatility encourages commodity producers to pursue risk-minimising strategies with the consequence that investment in production is limited and the cultivation of higher revenue but higher risk products remain off-limits. Whilst this is particularly the case for rural producers and informal sector workers, even a relatively sophisticated private sector enterprise can be critically wounded by sharply rising prices for fuel or essential raw materials, or a significant year-on-year drop in realised prices. Moreover, volatility has particularly damaging effects on poor people in low-income countries whose ability to cope is limited by shallow financial sectors and political and economic constraints that place limits on the type and nature of government interventions.

A number of policy responses to commodity price volatility have been explored by governments. In the past, the focus of efforts has often been through domestic and international price stabilisation schemes. Unfortunately, where governments attempted to stabilise prices for domestic producers and consumers, many did not transfer the risk of unfavourable price movements outside of the economy. As a result, external price shocks were largely absorbed by the government's budget. International price stabilisation schemes have included supply management schemes embedded in international commodity agreements. Most have been ineffective or collapsed as a result of internal or external pressures. They have also included compensatory financing mechanisms, such as the International Monetary Fund's Compensatory Finance Fund and the European Union's STABEX programme. While compensatory finance may have significant potential if the structural challenges impeding the IMF and EU schemes can be satisfactorily addressed, these mechanisms must be currently considered as unproven at best.

In recent times, governments of developing countries have taken up market-based solutions to long-standing developmental issues. Liberalization and deregulation has seen the removal of the protective insulation to commodity sectors and the withdrawal of government from many of its earlier support functions. Therefore, commodity price volatility is now felt increasingly at the level of the commodity producer, often the weakest and least resilient entity in the supply chain. It is in this context that new approaches to commodity price risk management grounded in the use of market instruments - and the institutions which facilitate them, such as commodity exchanges - have obtained greater salience in the developing world.

Many commodity sectors in developing economies have undergone severe structural reform in recent decades. Extensive liberalisation has seen a substantial withdrawal of government support for the sector. As a result, the supply chains to which commodity sector participants were accustomed have in many cases ceased to operate. Access to markets has become less predictable, as has access to the ancillary services that, for example, parastatal marketing boards used to facilitate – services that often included pricing support, market information, storage and logistics, finance, extension services, and input supply.

Without the stabilizing institutions and the established set of practices that previously enabled engagement in commodity supply chains, transaction costs have risen steeply for many commodity sector participants. Thus, the commodity exchange, which can provide many of the same services as parastatal marketing boards, and in a manner that is financially sustainable, may represent one of the best means to fill the void arising from government withdrawal from the sector.

Measured by contract volumes, nine of the world’s twenty-two major commodity futures exchanges are now located in the developing world. This includes three exchanges each in India and China, plus others located in Malaysia, South Africa and Brazil. Most of these exchanges were established in the 1980s and 1990s in response to government liberalization of commodity markets. However, the three Indian exchanges were established as recently as 2002/3 and already two of them feature in the world’s top ten, overtaking long-established institutions such as the New York Board of Trade.

The exchanges mentioned above exhibit a richness and diversity in their structure, services and operations, reflecting the specific challenges posed by its national context and the entrepreneurial minds that developed these exchanges over time. Each institution has made a strong contribution – often operating in partnership with public and private sector - in helping its country to meet some of the new opportunities and overcome some of the pressing challenges it faces in adapting to the contemporary globalised commodity economy. A range of examples abound:

• As a central focus for trade in a given jurisdiction, a commodity exchange can cement links with international buyers and sellers. Thus, the Brazilian commodity exchange, the Bolsa de Mercadorias & Futuros (BM&F) has formed a ‘bridge’ facilitating trade between soybean producers in Brazil and purchasers in China.
• Futures prices also act as important signals in the calculations and decisions used by commodity importers and exporters. In South Africa, for example, the transparency of grain futures prices, together with the acceptance of foreign grains for delivery through the SAFEX exchange, acts to ease supply shortages which can significantly increase the prices of staple foodcrops in the country. 
• Exchange-defined product quality specifications can provide the necessary assurance for purchasers situated remote from the sellers that the goods they receive will meet their requirements. For example, the cardamom contract launched by MCX in February 2006 has spawned a new quality standard, known as 'MCX Cardamom', that assures the purchaser receipt of a premium product. The standard, created for deliveries through the futures market, has now become widely accepted and used in physical market transactions - particularly in the lucrative export market where guaranteed high quality is essential.
• Futures contracts can provide a means for market participants to set transparent and neutral prices as well as managing their price risk. For example, Bursa Malaysia has been cited by world palm oil market participants as a significant driver of the recent high growth in global palm oil trade. Bursa Malaysia's crude palm oil futures contract provides palm oil participants both in Malaysia and around the world with an accessible and effective venue for the management of exposure to price volatility. Moreover, the prices generated on the exchange are used as references for the global palm oil trade, the transparent pricing information giving buyers and sellers confidence to transact despite the separations of time, distance and culture.

It should also be noted that many smaller exchanges are located across the developing world, and not just in middle-income developing countries. Exchanges exist in developing countries throughout Asia and Latin America, including Thailand, Indonesia, Pakistan, Dubai, Iran, Argentina, Colombia, Panama and the Dominican Republic. A significant number of these focus on spot and forwards trade rather than futures. Some, notably in Latin America, have also proved particularly innovative in applying exchange mechanisms to provide solutions in areas such as commodity finance and import quota allocations.

Trade-facilitating institutions boost trade by reducing the cost and uncertainty of entering into transactions. One of the ways they do this is by applying a framework of rules and procedures to regulate trade, thus providing individuals or organisations with increased confidence to engage in mutually beneficial transactions.

According to the Objectives and Principles of Securities Regulation (IOSCO 2003), there are three overarching objectives of regulation - the protection of investors; ensuring that markets are fair, efficient and transparent; the reduction of systemic risk:

• Protection of investors: measures taken to protect investors – taken here to mean all market users - from unscrupulous or irresponsible practices by exchanges, counterparties or intermediaries with which they may interact. Common mechanisms used to protect investors include: fitness or good character qualifications for intermediaries; requirements for intermediaries to segregate client funds from their own funds; and binding arbitration mechanisms for dispute settlement.
• Ensure that markets are fair, efficient and transparent: measures taken to ensure that the market price truly reflects the known information about the market, to constrain 'speculative excess', and to avoid manipulation of prices or physical stocks. Common mechanisms used to uphold market integrity include: ensuring a time-stamped audit trail of all trading activity; position limits for speculative participants, including tighter limits in delivery months; constant monitoring of trading for suspicious patterns; free, transparent dissemination of data; an approval process by the external regulator for new contracts to ensure an adequate deliverable supply (among other factors); and 'know-your-customer' requirements for intermediaries.
• Reduction of systemic risk: measures taken to effectively manage the systemic risk arising from market operations, reducing risk of default to acceptable levels, and ensuring the system as a whole is sufficiently resilient to withstand shocks, such as spikes in volatility or the collapse of a large trader. Common mechanisms used to reduce systemic risk include: minimum capital requirements to participate in the markets; the rigorous use of the margining system with margin levels related to market risk (including higher margin requirements in periods of increased volatility and during the delivery period); daily price movement limits (or 'circuit filters') that confines daily trading within defined price parameters; and a 'risk hierarchy' which ensures that exchange members cover their clients' position in the case of a client default, and a clearinghouse guarantee fund covers members' positions in case of a member default.

In many countries, regulatory oversight - fulfilling each of the three objectives outlined above - exists at three levels:

• External regulator: a governmental agency, or an independent agency accountable to government, that provides regulatory oversight across national markets as a whole. An external regulator may also act as an interface with the external regulators of other national markets to ensure adequate regulation of transactions that are cross-jurisdictional in nature.
• The exchange as a self-regulatory organisation: the exchange's own personnel and systems that provide regulatory oversight over exchange operations, including both the trading and - where it is performed in-house - the clearing and settlement functions.
• The industry self-regulatory organisation: a body that either represents market intermediaries (i.e. brokers and other entities active in the markets), or is appointed by government to oversee the activities of market intermediaries. In particular, an industry self-regulatory organisation can ensure investor protection by overseeing relations between the intermediary and the end user.

Each level of regulation incorporates an often wide array of mechanisms and instruments which work to meet the three objectives outlined above.

The table below summarises the key regulatory features in five large commodity exchanges situated in developing countries: the Bolsa de Mercadorias & Futuros (BM&F, Brazil); the Dalian Commodity Exchange (DCE, China); the Multi Commodity Exchange of India (MCX, India); Bursa Malaysia; and JSE / SAFEX (South Africa).

The role of government within the regulatory structure is typically twofold: an oversight role, by disciplining those who try to manipulate the markets for their own benefit, and ensuring the sanctity of contracts; and an enabling role, by providing the necessary legal and regulatory framework, and in certain circumstances, elements of the physical infrastructure without which markets may not function effectively (e.g. warehousing, logistics, telecommunications and information networks).

No. Commodity exchanges have not succeeded everywhere. There are many reasons for this. These can include the absence of a strong and transparent regulatory environment, the challenge of building trust and participation from established trading communities, and sometimes erratic government intervention that has distorted or undermined the price formation process.

Africa in particular has experienced a high rate of commodity exchange failure – only the SAFEX exchange in South Africa has truly withstood the test of time. This situation has occurred for some of the reasons outlined above. An additional important factor which has made the establishment of exchanges in Africa more challenging than elsewhere in the world is the small scale of many African markets. Lack of sufficient scale makes it difficult to build sufficient trading volumes to recover the costs of initial outlay in technological systems and market development, and reduces the likelihood of an exchange being efficient in its trade, investment and risk management solutions.

For these reasons, amongst others, the successful establishment of a commodity exchange is not an easy undertaking. Nor is it always and everywhere appropriate – in some circumstances, the costs imposed by an exchange may exceed the resulting benefits for commodity sectors. Alternatives do exist – including facilitating access to existing international exchanges, and non-exchange trade facilitation and risk management solutions – although each of these other possibilities also bring risks and challenges.

Operates a risk default fund which operates on a similar basis

Finally, where scope exists for a commodity exchange to make a positive impact on developing country commodity sectors, it is essential not to view the exchange as a panacea. Instead, it should be considered as one potential element - albeit an important and dynamic element - within the overall policy package.

Recognising some of the difficulties involved, some developing countries are taking a regional approach to commodity exchange establishment or development. As long ago as 1991, the African Union’s predecessor organisation, the Organisation of African Unity, recognised that a commodity exchange could act as an ‘instrument of integration’ for Africa. A similar regional approach is now in its preliminary stages in Central America.

Yes. LDCs are those countries least able to integrate advantageously into the globalised economy. Within developing countries and LDCs, the impact of commodity market liberalization has been felt most severely by small producers that are geographically remote or in other ways marginalized from major trading centers. Consequently, it is imperative to use the full range of available tools and solutions to support both LDCs and small producers. A commodity exchange has  the potential role to play with each.

 LDCs are often dependent on the production and export of a small number of commodities for their income, employment and sources of foreign exchange. Therefore, the need to protect themselves from sudden drops in prices is a critical imperative. LDCs would not need to set up a domestic futures exchange in these countries to do this, and in many cases nor should they. However, to the extent that liquid risk management markets exist internationally for the commodities upon which LDCs depend, governments, producer cooperatives and other entities with potential managerial and technical capacity in LDCs should be trained in how to use these instruments advantageously. Moreover, governments, the international community and the private sector should work together to help them to participate in these markets.

Small farmers typically face proportionally the steepest transaction costs if they look to participate in markets. This is driven by poor transport, storage and communications infrastructure, a lack of access to information and expertise, and limited sources of financing based on a lack of collateral. It is this predicament that often confines such producers to subsistence livelihoods. With the innovative application of information and communications technologies, and with new forms of structured commodity financing, the potential now exists for small producers to be better integrated into commodity markets. In India, internet access to market information and expertise, satellite-enabled connectivity to commodity exchanges and other service providers, and technology-augmented partnerships with owners of rural distribution networks such as banks or post offices are just some of the structural advancements that have overcome long-standing infrastructure barriers to smallholder participation in markets.

It should be emphasized that small farmers are not expected to participate directly in futures markets – at least, not until they build up the necessary knowledge, resources and capacity. Instead, dissemination of pricing and other market information, coupled with training of small farmers about how to use it, is one source of increasing farmers’ capacity and resilience. In China, the Dalian Commodity Exchange launched in 2004 the “1,000 villages and 10,000 farmers” educational programme that does just that. By early 2007, over 40,000 farmers had been educated on how to use futures prices to make optimal planting decisions. Additionally, intermediary organizations – including cooperatives, input suppliers, purchasers, financiers (including microfinance organizations) – can embed hedging functionality into the terms of contracts they offer to farmers. In this way, the small farmer can receive the benefits of price risk management without needing to devote the considerable time and resources that direct involvement in commodity futures markets would require.

Most importantly, the state is the leading actor in ensuring an appropriate enabling environment within which a commodity exchange can operate. One crucial pillar of this environment is a regulatory framework that ensures markets are transparent and free of manipulation, that protects market participants from unscrupulous practises, and that effectively manages the risks that arise from market operations. The second pillar is the wider legal-economic framework within which the exchange functions. Important components include defining the application of legal principles to exchange operations, appropriate taxation and accounting structures, aligning exchange operations with domestic and external controls on the flow of capital and physical commodities, and the rules governing the participation of financial, commercial and governmental institutions in the market. The third pillar is the physical infrastructure - information and communications technology, electricity, storage and logistics - which are essential components of exchange operations.

Another role that governments can play is to signal support for the market. This is important to provide confidence to existing trading communities to participate in the exchange. One strong signal is to channel the government's own food security and price support policies through exchange functions, as happens in the Brazilian Commodities Exchange (BBM), an agribusiness exchange subsidiary of the BM&F exchange. Another is to mandate state organisations with exposure to price volatility to use the exchange for hedging their price risk.

The potential complexity of exchange operations necessitates sharing of information, experience and expertise both within the developing world and between the developing and developed worlds. Technical assistance, financial support and awareness-raising are also important ingredients to establishing and developing a successful commodity exchange and regulatory framework. The international community – through bilateral and multilateral agencies, as well as specialised international organisations – can fulfil many of these roles.

Futures are standardised agreements between a buyer and a seller to:

• exchange a pre-agreed quantity of an asset of pre-specified quality
  • at a specific price, and
  • at a pre-specified future date

If the asset is a commodity, the futures are called commodity futures.

A commodity is a material that is traded in large quantities and whose quality standards and price are objective and universally applicable. For example, gold is a commodity because the quality standards and price of gold are objective and universal. However, gold jewellery is not a commodity because the price of jewellery depends on subjective factors such as design, brand image, etc. Other examples of commodities are: agricultural produce such as food grains, pulses, cotton, etc; metals such as nickel, zinc, aluminium, etc.

Trade in commodity futures presents two advantages to the market:

• It leads to price discovery by market forces alone.
• It enables participants to hedge against price volatility.

Price volatility is wide swings in prices due to market conditions, expectations, and sentiment over a period of hours, days, weeks or months.

Usually, companies supply their products to their customers against contracts signed in advance; so they are obliged to sell at the contracted price. The contracted price is based on the seller's own costing, which in turn is based on the anticipated price of the commodity used as raw material of the product the seller sells.

For example, a cotton seller cannot ask his customer for a higher price than agreed in the contract if the price of cotton goes up in the market between the time of signing the contract and the time of manufacturing the end-product. Thus, the seller loses by selling cotton at a price cheaper than the market price.

Similarly, the customer cannot ask the cotton supplier to reduce the price of cotton if the price of cotton in the market falls between the time of signing the contract and the time of buying the cotton. So, the customer loses by way of buying cotton at a higher price than the market price. Thus, price volatility is always bad for one party to a sell-buy contract.

If your business is heavily dependent on a commodity, whether as a supplier or a consumer, you want stability of your cost inputs. You can achieve this stability by securing the price at which you want to sell or buy your commodity. In the interest of stability of their business costing, commodity suppliers and consumers are willing to sacrifice possible windfall of a favourable price change and opt for stability instead. This is similar in a way to insurance: you insure yourself against a risk - the risk in this case being a commodity price movement adverse to you. Insuring this kind of price risk is called 'hedging'.

Hedging is an internationally well-established market mechanism where suppliers and large consumers of commodities protect themselves by selling or buying futures on a commodity exchange. You can hedge against price volatility in those commodities traded on a particular commodity exchange.

In hedging, a buyer who requires a commodity at a future date, protects himself from the risk of a possible price rise, by agreeing to buy the same commodity at a pre-determined price. Alternatively, a seller who plans to sell a commodity at a future date but fears a potential price fall can agree to sell the same commodity at a pre-determined price. Thus, both buyer and seller can use hedging to obtain protection from adverse price movements

No. The primary participants in commodity exchanges are its registered Members. All other participants participate as Clients of registered Members.

Yes. Commodity exchanges are typically regulated by a specialized government agency. This might be a regulator which has particular responsibility for overseeing commodity futures markets, as happens in the United States (Commodity Futures Trading Commission) and India (Forward Markets Commission). Alternatively, it might be a regulator which has responsibility for overseeing all exchanges in a given jurisdiction, including both commodity and stock exchanges, as happens in the UK (Financial Services Authority), South Africa (Financial Services Board) and China (China Securities Regulatory Commission). A commodity exchange typically reinforces external regulation with its own array of self-regulatory mechanisms, articulated through its rules and bylaws.

The role of such regulation is threefold: to ensure that rules and procedures are enforced in a manner that is fair, efficient and transparent, so as to maintain market integrity; to uphold financial integrity through effective management of systemic risk; and to protect investors from unscrupulous or irresponsible practices by exchanges, counterparties or intermediaries.

Hedging on Bourse Africa is a trade mechanism that offers participants protection from the adverse effects of price volatility in the commodity markets. It is comparable to the concept of insurance in the sense that insurance offers financial cover against specified risks just as hedging offers financial cover against the risk of wild fluctuations in price.

The profitability of a commodity-dependent business is largely influenced by the price at which it sells or buys the particular commodity. But, commodities are vulnerable to price volatility, which can adversely affect profitability. Companies that opt for hedging on Bourse Africa can do their costing on firmer grounds. This leads to better management of the business. Most commodity-dependent companies in the developed economies hedge against price risks through the same mechanism that Bourse Africa provides.

Every large buyer/seller of commodities needs to hedge against price volatilities throughout the year. Though seasonal price fluctuations can be anticipated, the intensity of volatility cannot be predicted. Besides, there are many factors other than seasonality that cause price volatility. Therefore, the need for hedging is constant.

All large buyers and sellers of commodities need to hedge because they all stand vulnerable to price volatility. They include: commodity producers; large consumers; manufacturers for whom a commodity is a major raw material; processors of commodities; importers; exporters; traders, and so on.

Hedging is a method by which a buyer, who requires a commodity at a future date, protects him/herself from the risk of a possible price rise, by agreeing to buy the same commodity at a pre-determined price. Or alternatively, a seller who plans to sell a commodity at a future date but fears a potential price fall can agree to sell the same commodity at a pre-determined price. Thus, both buyer and seller can avail themselves of the hedging mechanism on Bourse Africa to obtain protection from adverse price movements.

No, they don't. They don't need to. And it's important that they don't (otherwise, if they are influential, they could manipulate the market). That's why parties to all transactions on Bourse Africa are anonymous.

Bourse Africa stands in as guarantor for both the parties. Therefore, the buyer does not need to worry about delivery and the seller does not need to worry about payment.

In India, hedging against price volatilities is possible for periods of several days up to six months. In Africa, the duration of hedging will be in large part a function of the specific hedging needs of African commodity market participants and the volume being traded on the markets (the more volume, the longer the duration it is possible to offer).

Hedging on Bourse Africa covers a major part of price risk. To be safe, it is advisable to presume that you are MINIMIZING your risk through hedging, NOT eliminating it.

Hedging is provided for all commodities that will be traded on Bourse Africa. These are likely to include: precious metals (e.g. gold, silver); base metals (e.g. copper, aluminium, zinc, lead, tin, nickel); energy products (e.g. natural gas; crude oil); agricultural commodities (e.g. oilseeds, pulses, spices, plantation crops, sugar, fibres); and other commodities to be determined.

Hedging for the commodities listed on Bourse Africa can be done by buying or selling a futures contract through a member of Bourse Africa. Alternatively, if one becomes a member oneself, it is possible to hedge directly for oneself or one’s clients.

Yes. One has to make a security deposit and pay a nominal transaction fee plus maintain a cash flow to weather temporary price fluctuations in between the moment one enters into a hedging transaction and the moment one buys or sells one’s physical commodities.

As a commodity exchange, Bourse Africa acts as a facilitator and guarantor for both buyers and sellers. Bourse Africa’s biggest strengths are the transparency and full safety of transactions, and its neutrality. Bourse Africa does not itself set prices on the market.

A member is a company or an individual registered with Bourse Africa to trade (buy and/or sell) on the Bourse Africa platform on its own behalf or on behalf of its clients, which may include commercial organisations and/or individuals.

Hedging is the most common method of price risk management. It is the strategy of offsetting price risk that is inherent in a spot market by taking an equal but opposite position in the futures market. Futures markets are used as a mode by hedgers to protect their businesses from adverse price changes, which could dent the profitability of their business. Hedging benefits all participants involved in the commodity supply chain, including farmers, processors, merchandisers, manufacturers, exporters, importers, etc. The following are two hypothetical illustrations of the benefits of hedging:

Hypothetical Illustration 1: A wheat miller enters into a contract to sell flour to a bread manufacturer four months from now. The price is agreed upon today though the flour would only be delivered after four months. The miller is worried about the rise in the price of wheat during the course of next four months. A rise in the price of wheat would result in losses on the contract to the miller. To safeguard against the risk of increasing prices of wheat, the miller buys wheat futures contracts that call for the delivery of wheat in four months time. After the expiry of four months, as feared by the miller, the price of wheat may have risen. The miller then purchases the wheat in the spot market at a higher price. However, since she has hedged in the futures market, she can now sell her contract in the futures market at a gain since there is an increase in the futures price as well. She thus offsets her purchase of wheat at a higher cost by selling the futures contract thereby protecting her profit on the sale of the flour. Thus, the wheat miller hedges against exposure to price risk.

Hypothetical Illustration 2: A farmer plans to harvest the Guarseed crop in the month of November. But in the harvesting season (November), the Guarseed prices usually decline due to excess supply in the market. This usually forces the farmer, who requires income for the next subsequent harvesting season, to sell his harvest at a discount. The farmer has two options to counter this risk to which he is exposed due to price fluctuations:

Option A: Store the Guarseed, which has been harvested for a few months and subsequently sell the Guarseed when the prices increase (in the non-harvest season). But, this would not be possible if the farmer requires the proceeds from the sale of his harvest to finance the next crop season. Also, the farmer would require adequate storage space and would need to use specialist preservation techniques to ensure that the stored harvest would not be destroyed due to infestation.
 

Option B: Alternatively, the farmer can hedge himself by selling November Guarseed Futures contract in the month of September. Any decline in the spot prices in the month of November would result in decline in the futures prices, which he has already sold at a higher price. Upon harvest, the farmer would offset his futures transaction by buying Guarseed November futures contract and simultaneously sell his Guarseed crop harvest in the physical market. This ensures that the farmer is protected against any decline in the prices in the physical market.

Hypothetical Illustration 3: An automobile manufacturer purchases huge quantities of steel as raw material for automobile production. The automobile manufacturer enters into a contractual agreement to export automobiles 3 months hence to dealers in East European market. This presupposes that the contractual obligation has been fixed at the time of signing the contractual agreement for exports. The automobile manufacturer is now exposed to risk in the form of increasing steel prices. In order to hedge against price risk, the automobile manufacturer can buy Steel futures contracts, which would mature 3 months hence. In case of increasing or decreasing steel prices, the automobile manufacturer is protected. Let us analyse the different scenarios:

Scenario 1: Increasing Steel Prices

If steel prices increase, this would result in an increase in the value of the futures contracts, which the automobile manufacturer has bought. Hence, he makes profit in the futures transaction. But the automobile manufacturer needs to buy steel in the physical market to meet his export obligation. This means that he faces a corresponding loss in the physical market. But this loss is offset by his gains in the futures market. Finally, at the time of purchasing steel in the physical market, the automobile manufacturer can square off his position in the futures market by selling the Steel Futures contract, for which he has an open position.

Scenario 2: Decreasing Steel Prices
 
If steel prices decrease, this would result in a decrease in the value of the futures contracts, which the automobile manufacturer has bought. Hence, he makes losses in the futures transaction. But the automobile manufacturer needs to buy steel in the physical market to meet his export obligation. This means that he faces a corresponding gain in the physical market. The loss in the futures market is offset by his gains in the physical market. Finally, at the time of purchasing steel in the physical market, the automobile manufacturer can square off his position in the futures market by selling the Steel Futures contract, for which he has an open position. This results in a perfect hedge to lock the profits and protect from increase or decrease in raw material prices. This also provides the added advantage of Just In Time Inventory management for the automobile manufacturer.

Price discovery is the process by which future prices of commodities are arrived at by a large number of buyers and sellers spread across a wide geographical area who anonymously trade contracts that are to mature at a specified future date. Such contacts are technically known as 'futures' and are traded on a single trading platform like Bourse Africa. Sellers and buyers use information they have on the demand and supply of commodities and thus eliminate the possibility of price manipulation by vested interests.

The participants in the price discovery process include producers, bulk consumers, processors, exporters, importers, arbitragers and investors.

In the absence of price discovery by market forces, prices can be manipulated or dictated. Prices thus fixed are usually in the interests of a few and not in the interests of the macro economy. Hence, it is necessary to discover the prices based purely by the market forces of demand and supply. Prices thus discovered are the correct prices in a given market situation at a given time.

Buyers and sellers of different commodities quote their prices based on the best available estimates about the demand and supply of specific commodities. The market keeps on assimilating and absorbing these prices seamlessly on a continuous basis to arrive at a best possible average price for the day. This, in economic terms, reflects the “scarcity value” of the commodity.

Bourse Africa provides a platform for buyers and sellers to anonymously execute trades on an open auction basis. When a price offered by a seller is accepted by a buyer, it becomes the ‘discovered price’ at that given time. As large number of sellers and buyers operate through Bourse Africa, the ‘discovered price’ keeps getting ‘re-discovered’.

In other words it keeps changing according to demand-supply forces at any given time.

The price discovery mechanism can be applied to all fungible commodities that are traded in big quantities across a wide geographical area. Price discovery on Bourse Africa may cover precious metals, base metals, energy products, agricultural commodities and other products. Even an ‘unconventional commodity' like carbon credits may have its price discovered in such a manner. In the foreseeable future, we also expect other ‘unconventional commodities' such as weather may be traded on Bourse Africa.

For an accurate answer to this question, let’s divide commodities into two broad categories:

Commodities whose prices are discovered in the domestic African market: These are essentially agricultural commodities which, by virtue of the quantity of their production and consumption within Africa, are subject to the domestic price-discovery forces. For these commodities, Bourse Africa plays the role of a neutral platform where sellers, bulk consumers, and investors may participate anonymously but transparently. This constitutes a continual price discovery process that culminates in a convergence or near-convergence of the futures price with the spot market price on the day of maturity of the relevant commodity’s future contract.

Commodities whose prices are discovered in markets outside Africa: These are commodities whose price discovery process does not take place in Africa but in other countries. For these commodities, Bourse Africa enables domestic market participants to participate in the global commodity market with trade denominated in their local currency or a liquid hard currency such as the US Dollar. In the former case, every trade in the globally traded commodities on Bourse Africa is automatically hedged against currency risk making it unnecessary for corporates to have a separate cover for this type of risk.

All trades on Bourse Africa are anonymous, i.e., the seller and the buyer don't know each other. Bourse Africa itself stands in as the counterparty for every trade. If a party to an Bourse Africa contract defaults on payment, quality, or due delivery date, Bourse Africa steps in and fulfils all obligations that the defaulting party was supposed to fulfil.

Specific national benefits of price discovery are:

• Influence of vested interests is neutralised since the price discovery process is influenced solely by the forces of demand and supply.
• The seller and the buyer trade at the correct market price.
• The supply chain is rendered more efficient since bulk sellers and bulk buyers trade directly with each other bypassing non-value-adding intermediaries.
• In the case of agricultural commodities, price discovery helps bring about a more equitable distribution of wealth in the rural economy thereby helping enhance socio-economic justice to the farmer

Prices discovered on the Bourse Africa platform will be made available through various information channels such as newspapers, television channels, etc. Prices will also be accessible on the Bourse Africa website. And of course, one can always ask a Bourse Africa broker too.

Price information is available free of cost through most of the sources mentioned above.