COMPARATIVE STUDY ON CURRENT FLOOR BASED TRADING SYSTEM AND ONLINE TRADING AT ETHIOPIA COMMODITY EXCHANGE

Abstract

The Ethiopia Commodity Exchange [ECX] is an organized market place that brings buyers and sellers to trade standardized contracts using its floor based trading system. The fundamental factors to establish successful commodity exchange includes having an efficient and robust trading platform. The focus of this research is to analyze the economic significance and limitations of the current trading system and assess the prospects and challenges of online trading and factors affecting its feasibility of implementation in ECX. Even if the country launches floor based trading system in April 2008, market actors are facing extensive physical strain, slow order of entry and execution, not being able to trade in multiple products and exchanges simultaneously, not being able to get instant market data. The study used a mix of quantitative and qualitative research method to collect and analyze data relevant for the study. Questionnaire and in-depth interview were used to gather relevant data for the study. The study collected data from 375 Members and Clients out of which 279 are found to be good for analysis. In-depth interview was conducted with ECX, ECXA and NEAA experts. Descriptive statistics was used to analyze the data. One item mean, frequency, and correlation were used accordingly. The study found that there is significant capacity problem with major skills gap with traders. The current system has its own significance in balancing the power of negotiation of traders by disseminating reliable data, and limitations in lack of market integrity, poor price discovery mechanisms and limitations in session and ticket writing times. It also found that there is good perception towards online trading system. Moreover, the Exchange expects transparency, greater market oversight, market integrity and more commodities by deploying online trading system and challenges mainly infrastructural problems, and capacity of traders. Based on the findings, the paper recommends deploying an integrated surveillance system, reasonable allocation of session time, awareness on rules, in-depth training of staff and traders and building a redundant system were recommended for both trading systems accordingly.