presentations by senior manager and bussinus development

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ECX MARKET DESIGN

Bemnet AschenakiSenior Manager, Strategy and

Business Development

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ECX Market Design

• Commodities• Contracts• Members

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ECX Commodities

• ECX will trade in the following four commodities– Wheat– Maize– Sesame Seed– Pea Beans

• Will start trading the following commodities in the near future– Teff– Coffee

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Why these commodities?

• High Volume commodities• Exchange contracts must be liquid to

be successful (maximum competition)

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Profile of ECX Traded Commodities

0500

10001500200025003000350040004500

'00

0 q

uin

tals

Maize Wheat Haricotbean

Sesame

Commodity

2004/20052005/062006/072007/08

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Why bring them to the Exchange?

• Current market lacks standardization, transparency and efficiency

• ECX trading system is designed to resolve current problems faced by the market

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What are Contracts?

• Exchange trading is on the basis on “contracts”• An exchange contract is a standardized contract:

– Product quality/grade– Lot size– Delivery terms and conditions– Payment terms– Price quotations– Dispute settlement

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What are the terms of a Contracts?

Trading SpecificationTrading Unit 50 Quintals (1 Isuzu Truck)

Price Quote All Price will be quoted arrived Addis Ababa

Daily Price Limit The daily price limit is the maximum amount, fixed by the exchange, that prices are permitted to rise or fall in a trading day

Position Limit The amount a member can buy or sell in one trading session.(10,000 quintals or 200 contracts_

Maximum Order Size The amount a member can buy or sell at one transaction(1,000 quintals or 20 contracts)

Trading Session Monday thru Friday 8:00am-12:15p.m

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Contracts………cont’d

Quality Specification Grade Based on Industry Consultation

Standard Based on Industry Consultation

Weight Tolerance 2% + or -

Delivery SpecificationDelivery Center ECX designated warehouse

Packaging 100 kg PP bag

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ECX ContractsCommodity Class of Commodity Grade Within Class Symbol

Maize White Maize White Maize 1White Maize 2White Maize 3

WM1WM2WM3

Mixed Maize Mixed Maize 1Mixed Maize 2Mixed Maize 3

MM1MM2MM3

Wheat Soft Wheat Soft Wheat 1Soft Wheat 2Soft Wheat 3

SW1SW2SW3

Hard Wheat Hard Wheat 1Hard Wheat 2

HW1HW2

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ECX Contracts …cont’dCommodity Class of

CommodityGrade Within Class Symbol

Sesame Seed Humera Sesame Seed

Humera Sesame 1Humera Sesame 1

HS1HS2

Gonder Sesame Seed

Gonder Sesame 1Gonder Sesame 2

GS1GS2

Wellega Wellega Sesame 1Wellega Sesame 2Wellega Sesame 3

WS1WS2WS3

Haricot Beans Unprocessed White Pea Beans

Unprocessed white pea bean 1Unprocessed white pea bean 2

UWPB1UWPB2

Processed white pea bean

Processed white pea bean 1 PWPB1

Unprocessed red kidney bean

Unprocessed red kidney bean 1Unprocessed red kidney bean 2Unprocessed red kidney bean 3

URKB1URKB2URKB3

Processed Red Kidney bean

Processed Red Kidney bean PRKB1

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How are Contracts Traded on the ECX?

• Contracts are traded according to trading rules on the ECX trading Floor

• Contracts are traded through Members who purchase seats on ECX

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Why Members?

• Exchanges need Members for:– Orderly trading– Integrity– Ease of market regulation

• Conditions for Membership– Business integrity– Adequate financial resource– Knowledge and experience

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Role of Members

Market Success

Efficient PriceDiscovery

Trade Volume

Favorable Government

Policy

Exchange Governance

Members

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Types of Membership

• ECX has two types of Membership category:– Trading Member

• Trade only for their own account

– Intermediary Member • Trade for their own account as well as for non-

members

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What about the Non-members?

• Non-Members can trade on ECX as Clients of Intermediary members

• Before an Intermediary member can trade on behalf of Clients he must first enter into a Member Client Agreement (MCA)

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ECX Membership Drive

• ECX Membership Drive to recruit 100 founding member was launched on January 15, 2008– 137 applications were submitted– 62 members have been pre-approved– 5 have not been accepted– 70 are in the process of fulfilling the

requirements

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Who are the ECX members?

• Traders• Cooperative Unions• Exporters• Processors• Commercial Farmers

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THANK YOU

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“The Integrity of the Product:Warehousing and Grading”

Michael Kinfu

Chief of Business Operations

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Why Warehousing and Grading by ECX?

• To ensure the integrity of the product

• Warehouse receipts are the basis of trade by law

• Commodities in warehouse are fungible assets

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ECX Sites

ECX Warehouses

• Leased from Ethiopian Grain Trade Enterprise (EGTE)

– Addis Ababa– Awasa – Bure– Dire Dawa– Humera – Jima– Metema – Nazret– Nekemte– Shashemene

• All ECX operated• In the future 3rd party

operators

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• Quantity Certification– ECX has standard lot sizes– Minimum allowable deposit

• 50 qtl or multiples of 50 qtl • PP Bags only • 100kg/50kg

– Allowable tolerance on lot weight• Plus / Minus 2%• 1 Contracts (50 qtl) can be 49-51 qtl

– Completion of scale ticket

Quantity Certification

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• Importance of standard grades– Enhances transparency in the market– Standards build trust– Creates liquidity

• Derivation of ECX grade standards – Industry and stakeholders consultation– Global demand– Linked to Ethiopian National Standards

Quality Certification

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• Sampling and grading– ISO Standards

• Training - Federal Grain Inspection Service (FGIS)

– High level processes • Continue visual inspection • Determine number of bags to sample• Draw composite samples • Mix and divide into 3 uniform sample groups

– state of the art technology

• Send samples to laboratory

Quality Certification - continued

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• General Requirements / grading factors– Commodity has good natural color & appearance– Free from objectionable odor – Free from live insects and/or insect webbing– Free from pieces of glass, toxic seed, metal fragments– Free from smut (aremamo) and ergot

• only for wheat

• Each commodity has specific grading factors– Anyone factor can determine grade

Quality Certification – continued

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Quality Certification – continued

Maize (White & Mixed) Grade 1 Grade 2 Grade 3

Test Mass kg/hl. % min. 71 66 65

Total Impurities, % max 8.0 12.0 16.0

- Broken kernels, % max 2.0 3.0 5.0

- Foreign matter, % max 0.5 1.0 1.5

- Damage, % max 5.0 7.0 8.0

- Other grains, % max 0.5 1.0 1.5

Contrasting Color, % max 3.0 5.0 7.0

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Quality Certification – continued

Wheat Grade 1 Grade 2 Grade 3

Test Mass kg/hl. % min.      

- Hard wheat 79 77 75

- Soft & mixed wheat 77 75 73

Total Impurities, % max 6.0 9.0 12.0

- Underdeveloped & broken kernels, % max 2.0 3.0 4.0

- Damage, % max 3.0 4.5 6.0

- Foreign matter, % max. 1.0 1.5 2.0

Contrasting color,% max 5.0 7.0 10.0

Vitreousness (% min hard kernel) - H, S, M H, S, M H, S, M H, S, M

- Hard wheat - min, 80% > 80 > 80 > 80

- Soft wheat - less than 60% hard kernel < 60 < 60 < 60

- Mixed wheat between 60-79% hard kernel 60 - 79 60 - 79 60 - 79

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Quality Certification – continued

White Pea Beans (U) Grade 1 Grade 2 Grade 3

Total impurities, % max. 8.0 15.0 - Defects % max. 5.0 9.0 - Foreign Matter, % max. 3.0 6.0 Contrasting class, % max. 5.0 10.0 White Pea Beans (P) Grade 1 Grade 2 Grade 3

Total impurities, % max 4.0 - Defects, % max. 3.5 - Foreign Matter, % max. 0.5 Contrasting class, % max. 1.0 Size A Red Kidney Beans (U) Grade 1 Grade 2 Grade 3

Total impurities, % max 8.0 12.0 15.0 - Defects % max. 5.0 7.0 9.0 - Foreign Matter, % max. 3.0 5.0 6.0 Contrasting class, % max. 5.0 10.0 13.0 Red Kidney Beans (P) Grade 1 Grade 2 Grade 3

Total impurities, % max 4.0 - Defects, % max. 3.5 - Foreign Matter, % max. 0.5 Contrasting class, % max. 1.0

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Quality Certification – continued

  Grade 1 Grade 2 Grade 3

Humera Sesame   

Total impurities, % max 4.0 7.0  

- Damaged, % max. 1.0 3.0  

- Foreign matter, % max. 3.0 4.0  

Contrasting color (reddish seeds), % max 3.0 3.0  

Gonder Sesame   

Total impurities, % max 4.0 7.0  

- Damaged, % max. 1.0 3.0  

- Foreign matter, % max. 3.0 4.0  

Contrasting color (reddish seeds), % max 3.0 3.0  

Wellega Sesame   

Total Impurities, % max. 4.0 7.0 10.0

- Damaged, % max. 1.0 2.0 3.0

- Foreign matter, % max. 3.0 5.0 7.0

Contrasting color (reddish seeds), % max 3.0 3.0 3.0

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Receiving – continued

• Good Received Note• Inputs

– Scale ticket– Grading sheet

• Manger approval • Daily electronic

transmission to Central Depository– Becomes a Warehouse

Receipt • Basis for trading

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Inventory Management

• Non-Identity Preserved – Bag based– “Fungible” commodities

• Stored using First-In-First-Out (FIFO)– Stacked by commodity, class, grade, date– Warehouse sectioned accordingly

• Preservation of Quality– Appropriate measures to protect quality

• Frequent inspection

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Inventory Management - continued

• Commodity storage duration date– Warehouse stay

• Storage intended for ECX Trading – But trading is not mandatory

• Guaranteed delivery in quantity and quality deposited

Commodity Receipt Expiration Date

Beans 60 Days

Maize 120 Days

Wheat 120 Days

Sesame 180 Days

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Insurance

• Insured– Grain / stock insurance– ECX assumes risks

• Protected– No transfers and relocation of commodities– Electronic as well as manual record keeping– ECX security

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• Member receives Delivery Notice from Central Depository

• Member submits Pick-up Instructions

• Entered in the system• Electronic transmitted to

warehouses

Physical Delivery Logistics - continued

Member Pick-up Instructions

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Physical Delivery Logistics - continued

Goods Issuance Note # 423• Good Issuance Note• Inputs

– Scale ticket– Grading sheet

• Manger approval • Daily electronic

transmission to Central Depository

• Closes or decrements a Warehouse Receipt

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End to End Commodity Management

•Product Certification•Receiving• Inventory Management • Insurance•Delivery• Information is transmitted from each warehouse

– Electronically– Daily– Securely– Efficiently– Automated fashion

Warehouse#1

Warehouse#2

Warehouse#3

Warehouse Warehouse #6

Warehouse#5Warehouse Warehouse

Warehouse Warehouse

Warehouse

#4 Warehouse

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Costs

• Warehouse Fees– Warehouse Handling Charge (1.45 Birr per qtl)– Daily Storage Service Charge (.04 Birr per qtl)

• Penalties– Withdrawal without sale– Expiration of warehouse receipt– Late pick up beyond 10 days after Trade

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THANK YOU