Commodity exchange is a legal entity that manages, i.e. performs the activity of mediation in the process of trading in commodities, non-standardized forward contracts and ship space, and determines and implements rules and procedures related to trading on the commodity exchange.
The main activities of the Commodity Exchange are:
- Connecting members of the commodity exchange for the purpose of buying and selling market material
- Keeping the register of commodity exchange members, standardization of commodities
- Making and managing listings
- Calculation and payment of transactions on spot and forward markets
- Storage and administration of trading documents and guarantee funds
- Ensuring transparency
- Storing and publishing information on the demand, supply and market prices of market material, as well as other information relevant to trading in market material
- Determining the condition for membership in the Exchange
- The trading of market materials
- Control of the Commodity Exchange members related to trading, in order to prevent and detect violations of market integrity and Commodity Exchange rules
- Taking action against Commodity Exchange members who act contrary to the rules of the Commodity Exchange
- Out-of-court settlement of disputes in trading on the Commodity Exchange.
It is not allowed for the Exchange to trade in market material in its own name and for its own account.
For the needs of the functioning of settlements and payments on the spot and forward market, the Exchange will open a special, collective, dedicated Serbian dinar and foreign currency account with a commercial bank through which payments, charges and transfers are made based on trading in spot and forward markets.
The Commodity Exchange Law 52/2019 regulates the system for guaranteeing the execution of commodity exchange transactions based on trading on the spot and forward market, which is especially important for improving the position of small and medium enterprises. There is an obligation to open a special collective, dedicated account with a commercial bank to which funds are paid to guarantee the execution of the exchange transaction based on trading on the spot and forward markets.
The Commodity Exchange Law prescribes that an obligatory guarantee fund for certain types of commodities be held for which the member pays into (“Collective Account”) before concluding the contract or deposits other guarantee funds to secure trading which the Exchange prescribes.
Guarantee funds are used as a means of securing the execution of trading based on transactions and represent effective protection against the risk of non-fulfillment of the obligation to deliver commodities in the appropriate quantity and/or quality, as well as the risk of collection of delivered commodities.
In this way, some types of Exchange business, such as the security of the execution of transactions and security of performance of commitments are either completely removed or significantly reduced.
Small and medium-sized enterprises, as well as individual entrepreneurs, will benefit the most as they will be able to take advantage of such market-based risk management tools. The existence of non-standard forward contracts ensures that users, primarily companies that face the problem of high business risk, can manage them adequately. A developed exchange, such as NSCOMEX is particularly favorable to agricultural producers and agribusiness, whose profits are very much exposed to the risk of price volatility.
Guarantee funds are held by the Commodity Exchange in a deposit account. The buyer can use the deposit funds to pay for transactions and return to the seller after the completion of the commodity exchange transaction where there is residual or no use. Guarantee funds can be monetary or non-monetary (e.g. a bank guarantee for the amount of necessary funds).
In the case of a possible dispute, mediation and arbitration will be available to the embers to access.
The Exchange will enable foreign currency payments for commodities intended for export. This will enable producers and traders to expand their offer through the exchange market into the region and provide domestic producers access to a much wider audience to sell.
One of the most important aspects of the Law is that which regulates the manner of price determination. The regulation significantly refers to the part of market preservation and concerns who can establish an Exchange, what are the conditions for this to happen, i.e. how supply and demand are created, and thus the price of a certain commodity product is registered. The new system of operation of the exchange is harmonized with commodity exchanges throughout the world. The main elements of the new way of working include market regulation, risk reduction (hedging), market expansion, a faster flow of commodity and financial exchange in Serbia.