ANATOLY GOLOMOLZIN: ON-EXCHANGE TRADE IS A SYSTEMIC MEASURE FOR INCREASING ECONOMIC EFFICIENCY

Deputy Head of FAS discussed nuances and prospects of on-exchange trading with physical goods at the III International Forum – “Commodities Exchange Market– 2018”

Anatoly Golomolzin pointed out that No.618 Order of the President of the Russian Federation “On the main directions of the state policy towards competition development” of 21.12.2017 had approved the National Competition Development Plan, that comprises measures for developing on-exchange trading on the markets. According to the speaker, it is one of the main directions of competition policy in Russia.

“Exchange trading under the frame of the Presidential Order on the National Competition Development Plan is considered one of the key elements for enhancing efficiency of economic performance. This measure requires minimum expenses in terms of organization and at the same time can generate the maximum outcome. Exchange trade is a systemic measure for improving economic performance. It helps solving different tasks: from reducing the things to order to providing conditions for modern business”, said Deputy Head of FAS.

“Exchange trading on the markets of physical goods shows how inefficient pricing on non-transparent markets can be. For instance, on-exchange timber trade in 2018 resulted in increasing prices from 50 to 400% in comparison with the prices in the off-exchange segment in 2017. The end-users paid the same price, but goods were delivered to them via multiple resale chains or gray schemes. At the same time, the tax base and proceeds from customs payments were underestimated”, emphasized Anatoly Golomolzin.

Continuing the discussion on increasing exchange trade efficiency, Deputy Head of FAS mentioned:

“Applying exchange quotations and off-exchange price indices obtained as a result of registering conditions of off-exchange deals will increase tariff regulation efficiency. Exchange quotations enable reducing subsidies from the budget approximately twofold against initially declared by the regions”.

“Exchange trade also helps balance the markets, adding the necessary flexibility”, explained the speaker.

“For example, exchange quotations on the gas markets go up when consumption reaches the maximum and drop down when consumption is at the minimum level, averagely remaining slightly lower that the regulated prices on the annual basis. Unevenness of gas supply and consumption is leveled through flexible pricing, which not only increase efficiency but also enhance reliability”.

“Exchange trade on the market of physical goods enables development of competitive conditions. For example, trading on distributed basis of “Transneft” helps provide direct rather than indirect competition between all refineries connected to the main oil-products pipelines (diesel fuel, aviation kerosene in Moscow Air Cluster)”, believes Anatoly Golomolzin.

To illustrate the ongoing significant changes, he informed that “Exchange trade is changing the conditions of the work of organizations involved in production infrastructure (main oil and oil-products pipelines, main gas pipelines). These entities became commodities supply operators, they organize commercial accounting in a new manner, shorten delivery timeline. They begin to operate not only and not so much as natural monopolies but as commercial infrastructure entities in accord with the law about on-exchange trading and clearing operations”.

The speaker continued: “Exchange trade on the spot market and derivatives markets (swaps, futures, options) qualitatively improves the conditions of physical markets (grain, sugar), forces to fundamentally improve the work parameters of traders (oil products). Possibility to acquire oil products on direct contracts (approximately 75% of the total volume), as well as in large wholesale and small wholesale exchange segments, curtail inefficient resale. Improving the rules of exchange trade with physical goods and, what’s important, developing exchange trade with derivatives enhances efficiency of all channels in the commodity distribution network”.

“Exchange quotations on the physical markets, off-exchange indices obtained as a result of registering the conditions of off-exchange deals, exchange quotations on the derivatives market form reliable benchmarks for domestic pricing and exchange trade helps cheapen and standardize the mechanisms of financial provision of the deals”.

Deputy Head of FAS gave examples of quotations and mechanisms of trading with such basic assets as oil products, coal, sugar, grain and others.

He clarified that “Selling goods on exchange quotations of the spot and derivatives markets attracts participants of financial markets to exchange trading, improves liquidity, creating conditions for risk hedging, for transition to doing business sin a modern way”.

“Benchmarks are also formed for the goods exported from Russia (for example, Urals oil). Preconditions are being created for export sales of Russian commodities in Rubles. Selling goods are the price of Russian benchmarks will attract funds to Russia from world markets, and ensure capital flow between financial markets and the real sector of the economy. It predetermines conditions for establishing one of the world financial centres in Russia, increases competitiveness of Russian economy”, summed upAnatoly Golomolzin.