New rules of operation on the Grain Market and provision in financial statements
Tomorrow, on 30 April 2019, the Exchange Council of NAMEX (part of Moscow Exchange Group) will gather to discuss on-exchange grain market operations.
Moscow Exchange has offered trading in agricultural products since 2015. It provides a wide range of derivative financial instruments for trading in wheat, corn, barley, soya, sunflower seeds and sugar. On-exchange trades facilitate access to agricultural sales markets for manufacturers, as well as expanding the sales geography and providing an opportunity to obtain financial resources against a current underlying asset. At the same time, consumers purchase grain at an exchange-quoted price with guaranteed trade execution and delivery of goods.
Since the launch of trades in 2015, 14 brokerage firms serving more than 300 clients have joined the grain market, while seven large agricultural holdings have gained direct access and 59 elevators in different regions in Russia have obtained accreditation. Over FY 2018 and Q1 2019, trading volumes reached 200 thousand tons of grain and nearly 90 thousand tons of sugar, while trading volume of swap trades for the period exceeded 5.5 million tons of grain.
In 2019, seasonal risks related to grain storage in elevators have increased substantially. Specifically the Exchange faces shortages of grain used as collateral under swap trades, allegedly due to theft. The Exchange has filed a claim for the initiation of criminal proceedings and is taking all necessary actions to reclaim the missing collateral, including by seeking insurance compensation. The interests of market participants are fully protected by NCC, the central counterparty and the operator of commodity deliveries, which guarantees trade execution for bona fide participants and assumes the risk related to the storage of goods.
To minimise storage-related risks, Moscow Exchange is now accepting new grain to elevators only on condition that additional requirements are met. The sugar market continues to operate without any restrictions, as the identified storage risks relate solely to the grain market.
Moscow Exchange has created a provision in its Q1 2019 IFRS financial statements planned to be released on 17 May 2019 of RUB 2.4 bln. In accordance with the Exchange’s conservative approach, this provision reflects the upper estimate of risks that could be realized due to the above described situation. Subsequently, the Exchange will adjust the size of the provision as obligations to the company are met and as it receives other compensation, including insurance.
Moscow Exchange sees the Commodities Market as one with high growth potential, and will continue to develop the market while strengthening mitigation of risks related to grain storage.