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Archive for September, 2012

Apparently or evidently, trying to explain, not the definition kind of explaining, but the “what exactly does that mean kind of explaining” on different issues in futures and commodities trading, in Kenya, can take one 3 years – and counting.  Quite understandably so because: Unless you have had an opportunity to have a hands-on experience with issues in Futures/Commodities trading, all you will have is theoretical know-how – which will not really translate to much in the short term. But folks aren’t even trying – and that’s what’s exasperating! Let’s all take that theory from finance and MBA classes and begin to understand it!

 

We have been expecting to have a Futures Market in Kenya since 2009 – word has it, we will have one “soon”. Whatever that means! So the CMA has somewhat restructured to be in line with this “soon deadline” by appointing a manager for the upcoming Futures Exchange. As of April 2012, the search for consultants to draft trading and oversight rules for the proposed exchange was still on. Again, a move I can understand because unless the Exchange is well structured, in line with International Best Practices (pardon my use of MBA – type redundant terminology like “best practices”!), we probably will not achieve much from it.

 

Maybe, instead of trying to find “a” consultant to structure the entire exchange, the CMA could, break down the different facets comprising an Exchange and find consultants for those. An exchange will need to define everything from front to middle to back office and different things must be addressed: structuring of contracts (pricing, contract types, how they trade, expiration, margining, clearing, reporting, delivery, settlement etc) regulatory structures, taxation issues etc.

 

In my opinion too, the CMA will need an “arm” that will, solely be tasked with addressing issues of the exchange – something like the NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission) in the US. The complexity of issues in futures and commodities exchanges, mandate separation of regulatory mandate, if full benefits of the exchange are to be accrued by participants.

 

As we contend with the pre-Futures Exchange issues, we will continue to grapple about price volatility, price discovery, price risk management (hedging), lack of another asset class presented in a futures exchange etc – things the current market will not adequately address with the absence of a well structured and regulated Futures Exchange.

 

In the meanwhile, I still continue trying to explain that a CTA (Commodity Trading Advisor) is not a Brokerage Firm. A CTA will generally give advice on trading of futures and options (for compensation) including but not limited to having actual trading rights on client accounts.  A Brokerage on the other hand will be the “facilitator” between the CTA’s, CPO’s (Commodity Pool Operators) and other individual and institutional clients AND the Futures Exchange. In the US, this would be a FCM (Futures Commission Merchant). We need to get this right, because we will need to be registering come CTAs, CPOs, and FCMs etc.

 

The Bourse Africa – that is to be the 1st Pan African bourse for commodities and derivatives will commence its operations in October 2012 (finally!). Maybe, the CMA, can go on down to Botswana for some “best practice” knowledge share?

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