In Ukraine, for the first time, trading in futures contracts on grain was launched

August 2, 2017. Kyiv/Mykolayiv – The Ukrainian Exchange, in cooperation with the State Agency of Reserve of Ukraine, launched trading in deliverable grain futures contracts.

This news was announced during the press conference by Oleg Tkachenko, Chief Executive Officer of the Ukrainian Exchange.

"We offered new instruments – futures contracts with the delivery of underlying assets – to the market. The first trade that ended in the delivery of grain under the contract was performed today. Until that time, all futures contracts traded in Ukraine had been exclusively non-deliverable – which means without the delivery of an underlying asset. Contracts that started trading on the Ukrainian exchange are different, because they lead to a real change of the owner of agricultural produce," stressed Oleg Tkachenko.

A standard delivery contract for the exchange was developed with input from experts of the USAID Financial Sector Transformation Project; specifications of futures contracts and the revised Trading Rules were fully approved by the National Securities and Stock Exchange Commission.

Futures contract with the delivery of an underlying asset is a contract under which the seller assumes the obligation to deliver an underlying asset and the buyer assumes the obligation to pay and accept the underlying asset at an agreed price and at a time stipulated when entering into a contract. In our case, the delivery is made by changing the registration of the ownership title to wheat stored in a silo.

"The market needs this instrument that creates real benefits for all its participants – producers, traders, financial intermediaries – with the most important one being the possibility to hedge risks. Undoubtedly, a lot should still be done to make this touchstone a sustainable instrument – it is necessary to change the legal framework, create a transparent market with transparent price discovery. I hope that our cooperation in this area will continue," commented NSSMC Chairman Timur Khromayev.

Futures contracts on wheat are globally popular among producers who use them to hedge against price volatility or negative trends in the agrarian market. There is also demand for futures contracts from traders who make money on price volatility in the short and medium term.

After all technological processes of trading in deliverable futures contracts on wheat are mastered, the Ukrainian Exchange is willing to launch trading in one more crop – corn.

To implement the grain futures trading project, the Ukrainian Exchange signed the memorandum of interaction with the State Agency of Reserve of Ukraine (State Reserve). Its silos are used to store grain that is a deliverable under agreements made in pursuance of futures contracts.

According to State Reserve Chairman Vadym Mosiychuk, participation in the project will allow silos to increase capacity utilization. "State silos included in the State Reserve system are full market participants. Even now, they confirm the availability of the necessary volume of grain to execute trades and stand ready to ship it within 24 hours to any place in the country. Therefore, we increase the profitability and value of the company. The winner is, first of all, the State, because it’s not so much about profit as it is about trust in the new instrument in general," emphasized Mr. Mosiychuk.

According to Vadym Mosiychuk, silos of the Mykolayiv, Dnipropetrovsk and Kirovograd regions will be engaged at the first stage of the Ukrainian Exchange’s project. The first trade was performed with the delivery of wheat at the Bread Base 76 State Enterprise of the State Agency of Reserve of Ukraine in the Mylkolayiv Region.

Trading in deliverable agricultural futures will contribute to the more effective and fair discovery of prices for agricultural produce and prevent the monopolization of the grain market in individual regions. The creation of new markets will provide new opportunities primarily to small and medium-sized farmers who do not have their own silos.

"The Ukrainian Exchange’s top priority is a high quality dialogue with market participants rather than the quick creation of liquidity. This is still an absolutely new exchange instrument for Ukraine that should be "mastered" before it is offered on a mass scale to all agrarian market participants: large silos, traders, agricultural producers. It is essential to understand their needs, capabilities and limitations. Currently, it is also important for the exchange to test special features of record keeping rather than exchange trading itself, master electronic document flow between the ultimate buyer and seller, build a legal and technological working model," – summarizes Ukrainian Exchange Board Member Olexiy Sukhorukov.