Almaty launches new commodity exchange into the gloom

By bne IntelliNews February 13, 2009

Clare Nuttall in Almaty -

The Eurasian Trading System, a new commodities exchange jointly launched by the Russian Trading System (RTS) and Regional Financial Center of Almaty (RFCA), is to start trading early this year. In the current economic climate, initial trading volumes are likely to be modest, but its founders hope to position the Kazakh exchange as a major regional player when conditions improve.

Launching the exchange is part of the RFCA's strategy of building the Kazakh capital up as a financial hub for the Central Asian region. An important part of this is the creation of new financial instruments. "The Eurasian Trading System will make it possible to trade a full range of futures and commodities. In addition, we have developed a new framework for derivatives, opened the way for the creation of Real Estate Investment Trusts - REITs - in Kazakhstan, and in late 2008, the first gold futures were launched on the [Kazakstan Stock Exchange]," says Chingiz Kanapyanov, deputy chairman of the RFCA. The new law on Islamic finance also came into effect in January.

The formal launch ceremony for the exchange was held at the end of 2008. A spokesperson for RTS told bne that the exchange is currently in testing mode, and will start operations in the near future. The RTS has a 60% stake in the new exchange, while its partner the RFCA holds the remaining 40%. It was set up with initial capital of $533,000.

Ideal place

Launching a commodities exchange is a natural move in a country as richly endowed with natural resources as Kazakhstan, Kanapyanov says. In the early 1990s, soon after independence, a number of commodities exchanges were established in the country, but today none of them are properly operational, according to Kanapyanov. "We have nine or 10 commodities exchanges in Kazakhstan, but all of them are old-style early 1990s systems. Most are either sleeping or dead, and none work properly as commodities exchanges," he says. "We therefore decided to develop a proper commodities exchange with a full range of instruments that will help both producers and buyers to conclude all sorts of contracts."

Initially, given that Kazakhstan is one of the top-10 largest producers of grain in the world, the exchange will handle grain and other agricultural products, as well as hydrocarbon products such as fuel and lubricants. Its founders hope to gradually increase the number and range of products. The RFCA hopes to see tenders on the ETS amounting to between 1.0m and 1.2m tonnes of grain, 2.5m-3.0m tonnes of diesel oil and 2.5m-3.0m tonnes of residual oil.

The exchange has been on the drawing board for some time, and Kanapyanov admits that the slump in commodity prices over the last six months does not make an ideal environment to launch such an exchange. "Yes, prices are relatively low and this is a new exchange. We are not wearing rose-coloured glasses, so we think initial volumes will be quite low. However, from a longer-term strategic perspective we would like to see this exchange become the major platform for commodities trading in the region," he says. "Eventually we want to have producers from Siberia, Central Asia and the entire region between Eastern Europe and the Far East."

Tax breaks for various financial instruments in Kazakhstan's new tax code are intended to attract international producers to Almaty.

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