1. Benefits of Commodity Exchanges to the Agricultural Markets
AFM Conference 2013
Johannesburg, South Africa
Paul Meier

2. Benefits of Commodity Exchanges
Short History of Derivatives
Commodity Exchanges
Function
Pre-Requisits
Benefits
For Industry
For the Economy in General
Threats

3. Misconception about Derivatives
Two important basic misconceptions about derivatives:
They are speculative tools – NO!
They are relatively new products – DEFINITELY NOT!

4. Principal Idea for Derivatives:
Risk Management –
not Speculation!

5. Short History of Derivatives

6. Short History of Derivatives
5000 b.c. Mesopotamia traded „futures“
Greeks knew derivatives (Aristotle describing their use by Thales)
Bible – story of Joseph, Rahel and Lea (Book of Genesis)
Various scandals, among them tulip crisis 1637
Foundation of Chicago Board of Trade
Capper –Tincher Act in US – first regulation
First Clearing House in US
IMM trading first financial future

7. Pre-Requisits for Commodity Exchanges
Standardisation of underlying product
Availability of tradeable warehouse receipts
Proper dissemination of price data
Participation of Trade
Appropriate legislation and regulation
Working finanical system
Commodity Exchange must be part of value chain!!

8. Benefits of Commodity Exchanges
Price finding
Standardisation of quality of underlying product
Standardisation of trading sizes of underlying
Facilitation of hedging
Assuring producers to have buyer at market price
Assuring supplies (incl certainty of delivery)
Helping Loans thanks to hedge possibility
Low costs
If options are available: purchase of insurance

9. Threats from Commodity Exchanges
Disruptions of Markets via speculation
Proper regulation must be in place (incl speculative position limits)
Disruption of Markets via manipulation
Necessity of proper oversight of markets
Failures of brokers (e.g. MF Global, Peregrine)
Proper Clearing House rules are a must

10. Paul Meier
Kindhauserstr. 32
8962 Bergdietikon/Switzerland