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17.08.2017

Futures delivery contracts for grain crops in Ukraine: myth or reality?

THE UKRAINIAN EXCHANGE IN COOPERATION WITH THE STATE RESERVE AGENCY OF UKRAINE LAUNCHED THE FIRST TRADES OF FUTURES DELIVERY CONTRACTS FOR GRAIN.

The practice of trading of the futures contracts is not new for Ukraine. But futures delivery contracts for grain crops have not so far been concluded by any enterprise on the territory of Ukraine. The introduction of the new instrument is due to the need to create rules for doing an honest and transparent business and to minimize the risks of the producer of agricultural products. The founders of the pilot project emphasize on the importance of this instrument for small and medium-sized businesses which is difficult to cope with the risks of price changes on products.

Within the framework of the pilot project, the first trading in futures delivery contracts for grain crops has already been conducted. At the initial stage, one futures contract is to supply 1 type of grain, which is transferred from one elevator.

The procedure for conclusion and performance of the futures delivery contracts consists of 3 stages:

1st stage: conclusion of a futures contract on the stock exchange;

2nd stage: the signing of the contract for the delivery of grain;

3rd stage: payments under the grain delivery contract.

At the first stage, the Seller and the Buyer conclude brokerage contracts with licensed market participants. After that, the guarantee is transferred. Then the Seller and the Buyer submit applications and conclude futures delivery contracts on the exchange.

At the second stage, the Exchange sends the contracts of delivery to the Seller and the Buyer. We emphasize that the Exchange sends electronic contracts which are signed by the parties using an electronic digital signature. After that, the Exchange registers the concluded contracts.

At the third stage, the Buyer sends to the Exchange the amount of the contract, and the Exchange instructs the seller to deliver the products to the elevator. At the elevator right to grain passes from the seller to the buyer. After the official notification from the elevator about the re-registration of the rights to the products, the Exchange transfers the funds under the contract to the Seller‘s account.

Thus, the risky stages of delivery and payment for such contracts are conducted under the control of the Exchange. This fact significantly minimizes the risks of the seller and the buyer and provides confidence to the market participants. The Exchange also conducts certification of elevators that can participate in such trade operations.

Recall that at a recent meeting of representatives of the Democratic People‘s Republic of Korea (hereinafter - DPRK) and the State Reserve Agency of Ukraine, representatives of the DPRK declared their readiness for export of large volumes of grain products from Ukraine. The requirements of partners from the DPRK remain to provide reliable suppliers and transparent pricing. Trade in futures supply contracts for grain is designed to meet these requirements.

Now the procedure for bidding in futures delivery contracts is new and still quite difficult for market participants. Therefore, we recommend you to turn to professional lawyers for qualified advice and legal support of such contracts.

If you need our legal advice, please send us your request - info@kodex.ua