Commodities Exchange defiant in face of new legislation
By Timothy Sifert
Despite concern about potential legislation that would stifle the country's already slight futures market, the Warsaw Commodities Exchange (WGT) plans to forge ahead with ambitious moves to bolster its futures trading business in the coming months.
Officials from the formerly state-owned exchange, which trades futures in commodity products such as wheat and hogs, as well as currency pairs, recently criticized new regulations that would disallow local brokerage houses' practice of trading future contracts on the WGT, among other restrictions.
WGT board member Artur Żur even threatened relocating the exchange to London, where such trades are common, to circumvent the bill that could become law next year.
"It's quite a sad situation," said one WGT market player. On condition of anonymity, he criticized the law, partially drawn up by the Securities and Exchange Commission, as tailored specifically for the stock market, which "is quite a different animal than a commodities exchange."
Nevertheless, after further consideration on the exchange's future, WGT executives are confident that through lobbying they will be able to at least improve the law enough to make it worthwhile to operate a futures market - one which they expect to be the exchange's largest revenue source in the years to come.
"We expect that the futures market will have the biggest influence on our financial status," said Żur. "So these products are really important and we will fight for better regulations."
Futures contracts, traded on a futures exchange, are agreements to buy or sell a specific amount of a commodity or financial instrument for a specified price at a specified time in the future.
Peter Kochanek, managing director of trading firm DMK and member of WGT management, shed light on the exchange's development plans. He said that at present the WGT is talking to several international entities to address a recent trend that, for the past three years, saw Warsaw-based trading desks relocate outside of the country.
The goal for the WGT is to repatriate some of that lost activity and liquidity. But instead of luring back trading desks and traders who defected - a hopeless task, because of an ailing global financial sector - it wants to enable foreign portfolios to reach their weighings in złoty-denominated instruments via close partnership agreements with the WGT.
At present it is building relationships with Fimat, the brokerage arm of Société Générale, Gargan-Intercapital, the world's largest interdealer broker, and two other London-based international financial institutions.
"A lot of trading in złoty-denominated instruments has left Poland," Kochanek said. "Banks are trying to cut costs. That's a function of the global economy. In Poland this has been going on for the past three or four years, and they have been consolidating trading outside Poland."
He pointed out that the Warsaw-based brokerage belonging to BNP Paribas is moving to Paris, and recently Bank of America moved its trading desk out of the country.
"The liquidity of the market has been reduced," he said. "It's very shallow."
He said the volume has been more than halved in the past few years.
Kochanek pointed out that dollar/złoty foreign exchange is a $1 billion-$2 billion market daily. He said that, if the WGT is able to add about $500 million to that existing liquidity through partnerships, it would attract even more interest. Until then, though, some institutions may sit out the Warsaw commodity game.
