Pulse of the future: pilot trading program begins

Beans and pulses traders have begun a pilot program selling futures contracts, as business leaders look to develop a futures market for commodities in the country.

Currently most agricultural commodities in Myanmar are sold “on the spot” for immediate delivery, but introducing futures contracts means an agreement to sell a commodity would come on one day, but the actual commodity would be delivered at a specific later date at the price previously agreed on.

While a futures market allows buyers and sellers to lock in a price and reduce the risk of price fluctuations, it also opens the door to speculation and requires strong contract enforcement to prevent disputes.
U Win Aung, chair of UMFCCI, said Myanmar traders have been discussing a futures market for some time – though declined to say when it will become a reality.

“First, Myanmar has to make rules and regulations about the market,” he told The Myanmar Times on the sidelines of a Ministry of Commerce meeting last month.

“To make [futures] trading systematic, we need infrastructure – specifically rules and regulations,” he said. “There are futures markets in other countries, for example Singapore, but they have no problem as there are systematic rules and regulations.”

Myanmar’s trades in agricultural commodities are often opaquely conducted, and scandals and swindles at commodity exchanges have broken out. Officials say they are keen to prevent similar problems in a futures market, which could undermine confidence in trading.

Merchants at Bayinnaung market in Yangon, the country’s largest commodities exchange centre, began a one-month trial for futures trades October 9. There are a number of rules in place, such as requirement for buyers to make a 10 percent payment up front and sellers to provide 10pc of the goods on the day the futures contract is sold, with the rest of the payment and goods coming on the delivery day.

U Myat Soe, an executive member of both Bayinnaung market and the Myanmar Pulses, Beans and Sesame Seeds Association, said market officials had discussed the idea with lawyers before beginning the trial program.
The centre made strict rules to govern trades and is keeping a close eye on the market.

“Regarding both good and bad impacts, we have to wait and see,” he said. “However, we’re trying to improve the situation.”

There have been a few instances over the last year when trades have gone sour, and the market is keen to make sure those problems do not happen with futures trading, he said.

Currently there is de facto futures trading, particular in the green gram type of bean, but it relies on personal relationships and trust.

“Quite often, if there is a rapid change in prices in a short time and payments need to happen, things get into a jam and problems break out,” he said.

While the commodity exchanges are a way of matching demand with supply, they also see traders keenly speculating on a number of different commodities, such as beans and pulses and gold.

One businessperson in Bayinnaung commodity market said he likened these speculative trades to gambling, claiming that buyers who do not have enough money make informal future agreements with sellers who do not have enough product, both hoping that the commodity price is swayed either down or up at the end of the period.

“This isn’t trading, but just gambling,” he said.

Many of these de facto futures trades do not have a signed agreement underpinning them and instead rely on oral agreements, meaning it can be harder to solve problems that break out.

Bayinnaung market traders told The Myanmar Times that September had seen a few notable instances of disagreements over contracts. Considerable thought should go into futures trading at the country’s
commodity markets before it actually begins, said U Hla Maung, a local economist.

“As far as I can tell, businessmen who speculate in the gold and beans markets are not trading, just gambling,” he said. “I don’t know how other countries control these kinds of markets, but I’m not sure if establishing [a futures market] will help the country’s economy develop.”

Other experts said a futures market is an interesting proposal, but will require some infrastructure improvements to become a reality.

Peter Brimble, principal country specialist at the Asian Development Bank, said most commodity trades are currently done manually in Myanmar, but a modern futures market will require investments in IT infrastructure.
“It’s interesting to start thinking about it, but there is a long ways to go,” he said.


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