Discriminatory operation of international commodity exchanges

Commodity exchanges are an important vehicle for the marketing of a number of the commodity exports of developing countries. Such countries face barriers to effective participation in commodity exchange services. The operation of these exchanges does not ensure that they obtain an equitable share in the gains from the trade.

Margin deposits demanded by commodity brokers and exchange clearing houses are often cited as the major barrier to the use of futures markets by developing countries. The uncertainty about the size of margin deposits during the life of contract makes it difficult for primary exporters or importers to persuade their local central banks to give permission for hedging and price fixing via terminal markets. Developing countries do not have necessary infrastructure of communications and so many prospective users from those countries may face frustration and high costs when trying to reach markets far away, especially if the trading happens in different time zone. The payment of brokers' commissions, of the margins and gains or losses will be in the currency of the country where the futures market is located. In some developing countries exist exchange control regulations which hinder greater participation in the existing foreign futures markets. The rules for admission to the different classes of memberships of commodity exchanges are primarily of a financial nature, governing bank guarantees, paid-up capital, etc. However, there are also regulations covering the nationality of member companies and their employees which can discriminate against foreigners. The procedure used to arrive at the official daily spot and futures quotations, as the former is used as the price for many contracts round the world, affect developing countries trade. The location of delivery points are usually near consumers' plants in developed countries and it is perceived as weakening producers' control over their own marketing strategies.