Amendment on Horizon Allowing ECX Guarantee Funds Reinvested

Authorities are set to introduce a new rule to enable businesses trading on the floor of the Ethiopia Commodity Exchange (ECX) to invest the settlement guarantee funds they deposit when they first acquire seats. It will soon be open for reinvestment if an amendment in the making wins approval.

None of the funds deposited with the ECX are transferable but tied to savings accounts at commercial banks.

Close to 230 million Br in guarantee funds has been deposited in seven commercial banks since the ECX began in 2008. The state-owned Commercial Bank of Ethiopia (CBE) accounts for nearly two-third of all the deposits, an amount larger than the minimum capital required to open an insurance firm. The amendment is drafted by experts at the Ethiopia Commodity Exchange Authority (ECXA), anticipated to present the opportunity to invest the guarantee bonds in treasury bills.

“Another alternative is to deposit it at the banks offering higher interest rates,” said Addis Bekele, clearing and oversight team leader at the Authority.

The ECX, where over 614,000tn of agricultural commodities were traded for 39.6 billion Br last year, requires deposits between 50,000 Br and 300,000 Br to trade on its floors on Chad Street. Intermediaries deposit 300,000 Br, while full-members deposit 100,000 Br less and 50,000 Br for non-members, including farmers. There are over 300 intermediaries and only 18 full members who can buy and sell commodities.

A committee comprising officials from the Authority and the National Exchange Actors Association, which represents 600 members, is undertaking a study to finalise the amendment following a recommendation from the Authority last year. Kicked off last month, the study is expected to sort out how profits from investments will be shared and alter the membership fees. It may also entail the establishment of a separate body tasked with managing the funds.

Fitsum Werqineh is a general manager of the Association, whose members often raise the issue of the security fund deposits.

“The move is a sign of good things to come,” Fitsum told Fortune.

Depositing security guarantee funds has been mandatory ever since the Exchange was established with the pioneering initiatives of Eleni Gebremedhin (PhD), its founding CEO. It sees the fund as a risk management strategy to cover possible losses. In case of defaults, the banks where the security funds are held are expected to settle these losses.

Anwar Ahmed is an expert who specialises in the commodity market, working as a consultant for close to two decades. He believes the security deposits should be used to facilitate warehouse deposit loans for farmers who use their crops as collateral to access financing. Farmers often take loans using receipts from Exchange as collateral, but interest rates are high, discouraging them from doing so.

“Using the security deposits to back loans would benefit the farmers,” said Anwar. “Traders would benefit too as shortages would be less likely to happen.”

The amended directive will be on the table for debate in two months, Addis disclosed.

Investing the guarantee funds is common across stock markets throughout the world. It is particularly preferred among businesses with long-term investment goals. The same rule is expected to be applied up to the institution of a stock market this year.






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