JSE Expands Commodity Derivatives Product Range To Include Zambian Grain Derivative Contracts

05/12/2012

The JSE has secured the approval from the South African Reserve Bank (SARB) to offer trade in Zambian grain traded and cleared in US Dollars, in collaboration with the Zambia Agricultural Commodities Exchange (ZAMACE). The two exchanges are confident the proposed Zambian derivative contracts will complement each other and ultimately strengthen the Zambian grain market.

“We are delighted that discussions between the JSE, the SARB and National Treasury have led to agreement that this exchange is able to assist Zambian market participants with price risk management tools via physically settled grain contracts,” says Chris Sturgess, Director of Commodity Derivatives at the JSE. “As Zambian grain production continues to increase, various parties within Zambia have asked for access to an established trading platform that will improve price discovery and allow market participants an ability to hedge their price risk. That is something the JSE is able to provide.”

Trade on the JSE’s commodity derivatives market has grown consistently, and now averages over 15,000 contracts daily with white maize representing around 45% of the total grain contracts. The division offers derivatives trade in local agricultural commodities and also, owing to a 2009 licensing agreement with CME Group, offers access into the world’s most liquid commodity markets for corn, crude oil and other international benchmarks.

The Zambian grain derivative contracts, aimed at being introduced by the end of Q1 2013, will allow investors and traders access to an established trading platform that will improve price discovery and provide market participants with reduced basis risk whilst considering local supply and demand factors when hedging their price risk.

“The Minister of Finance has granted approval to the JSE to offer the trading and settlement of Zambian grain referenced derivative contracts in US Dollars to non-residents and qualifying South African and Common Monetary Area corporates, says the Reserve Bank’s Deputy General Manager Charles Nevhutanda. “This offering is envisaged to not only enhance the JSE's competitiveness as an agricultural commodities exchange in Africa, but also to provide a secure trading platform for African agricultural commodities for price discovery and price risk management. This initiative is also in line with the Government's objective of positioning South Africa as a financial hub for investments into the rest of Africa. The South African Reserve Bank has, in this regard, issued an Exchange Control Circular to all the banks who are Authorised Dealers in foreign exchange.”

The JSE is working closely with ZAMACE and other local market participants to finalise the standardised contract specifications including the terms for physical delivery for the derivative contracts. Included in the contract specifications will be the ability at futures expiry to ensure the physical delivery process complies with Zambian exchange control regulations.

Brian Tembo, Executive Director of ZAMACE Limited says “Our partnership with the JSE is the realisation of our vision to further value our markets. The listing will open up unparalleled opportunities for the Zambian financial sector and will build internal capacities to better participate in price risk hedging in a more informed and transparent manner.”

“This is an exciting time for the region and the two countries involved, with an opportunity to work together enabling a greater reach for price discovery and price risk management tools in a currency that commodities are globally traded in,” says Sturgess.