Limited membership on the brink

ECX collects 123 million birr from 92 seats

The Ethiopian Commodity Exchange (ECX), a modern grain market, closed ‘limited membership’ on the trading floor for all commodities including the newest products (sorghum and chick peas), introduced on the exchange this year. The exchange sold 123.4 million birr worth of 92 full membership seats on Thursday December 15.
Previously, the exchange has been selling limited memberships for one year’s duration for traders to buy or sell one commodity.
Eleni Zaud Gebre Medhin (PhD), CEO of ECX, told Capital that the exchange does not plan to include limited members in the near future.
“Despite the fact that we introduced new products with electronic trading it will be only traders who have full membership that have an opportunity to sale and buy the new the products (sorghum and chick peas),” Dr Eleni explained.
Previously when ECX included coffee, sesame and white pea beans on the trading floor it allowed for a limited trading membership for traders who were used to trading the products through the traditional system.
“Currently we are not exclusively undertaking the trading of sorghum and chick peas [they are also available in the traditional markets], so there is no need to register limited members for the products,” the founding head added.
On December 15, the exchange allowed for additional full membership seats through three auction based categories.  The first category is for limited members who supplied sesame and white pea beans in the previous year. From the total 92 new seats offered for auction, 50 seats have been allocated for bidders that can participate in the first category.
Based on Thursday’s auction for the first category 66 bidders competed to secure chairs from the 50 available seats and 849,668 birr was registered as average bid price for this category; while over 2 million birr is the biggest price and 459 thousand birr is the smallest offer from the 50 seat winners on the bid. Teklay Gebremariam GebreMedhen bid the highest at over 2 million birr in the first category. 
In the second category 25 seats were allocated for limited buyers for members who have been involved in the past year on the trading of sesame and white pea beans. According to the auction result, 57 bidders participated in the second category at an average offer of 1.8 million birr for a seat. While the highest bid offer was 3.5 million birr, 1.41 million birr was the smallest offer. Zablon Trading Private Limited Company, has offered the biggest price with 3.5 million birr.
In the third category, which was opened for any interested individuals or companies, 17 seats were offered and 179 participants, higher than the other two categories, competed in the bid. The group also featured highest average price than the first two categories which was 2.91 million birr. Netsa Plc is the company that offered the biggest amount, 3.1 million birr, in the category.
For the total 92 seats 1.34 million birr was registered as an average price. It was only 210 thousand birr on the bid that was held two years ago.
Thursday’s offer has grown 27 fold compared to 2007 when the exchange was established and offered 100 seats at a price of 50,000 birr. However, there was a lack of awareness about ECX and people did not fully understand how valuable a seat at the exchange was, so at first there was not a huge rush to obtain memberships. When they offered seats a second time, however, the price of the 150 available seats rose significantly. 
“The price increment is the implication of the exchange’s success and growth, and the value of the membership between traders who used to undertake traditional trading system,” Dr Eleni commented.
From the sales of 92 seats the exchange has been able to collect close to 123.4 million birr.
According to the CEO, 80 seats offered for the auction are new, while an additional seven and five seats that were sold during the first and second membership registration are being re-offered because the seats are not active or their owners did not fulfill registration as per the exchange’s rule.
The 2009 auction brought in 3.3 million birr when the minimum price for a seat was 270,000 birr. That is up significantly from the initial price of 50,000 birr. 188 traders participated in that seat auction; while in the current auction 302 participants submitted their bid document to secure their trading power at ECX. At that time most permanent memberships were purchased by coffee traders and they worked as a group to buy them because they expected competition for the seats to be stiff.
Currently, about 237 traders are actively participating as full members. Most full members exchange coffee and sesame which are the major commodities trading on the ECX floor, while over 300 limited members are participating in the trading of sesame and white pea beans. “Limited members for sesame and white pea beans will not continue after the coming month,” Dr Eleni said.
Full members who have centered their business outside Addis Ababa were 10 percent of the total membership. Now, based on the current bid winners the percentage has grown to 42. At Thursday’s auction close to 60 percent of the bid winners came from outside of the capital city.
“This shows us the exchange and its actors are diversifying in different market sources of the country,” the CEO said. 
If a trader is a full member, they can buy or sell any commodity available. Their membership is permanent as long as they pay exchange dues.
Limited members can only trade one commodity during a year. They have to decide if they want to buy or sell the commodity, whereas full members can do both.
Membership is acquired through the purchase of a seat, provided other requirements are met for both regular memberships: trading and intermediary. These members have a right to sell or buy any commodities that are accessible during ECX trading.
ECX membership requirements are designed to ensure that members are of sound financial standing. 
They also must pay a non interest bearing security deposit in the form of cash, fixed for the duration of membership, which is issued to form the settlement guarantee fund of the exchange. The payments are 200,000 birr for traders and 300,000 birr for intermediaries.
Currently the exchange has 55 warehouses in 17 different locations in the country with 250,000 tons of storage capacity.