The Ethiopia Commodity Exchange Authority (ECEA) suspended the membership of Chay Trading and Services Plc, a coffee trading member of the Ethiopia Commodity Exchange (ECX), for six months, due to failure to sustain the minimum net assets required of an Exchange member.

A member is required to have net assets totalling one million Br, according to a directive issued by the Authority as well as the code of the Exchange. This is to ensure that they have the financial capability to handle transactions as an intermediary for their non-member clients and can deliver their products to the market as promised, according to officials from the Authority.

This is the first time that the administrative board of the Authority has suspended a member, due to their failure to maintain the minimum amount of net assets.

To make certain that requirements are being followed, each member is supposed to submit a financial statement prepared by an independent auditor licensed through the Authority, on a yearly basis. Additionally, members are supposed to present a report on their financial transactions every month.

The audit reports of Chay Trading, which was one of the first 100 member to trade on the Exchange floor, showed that it only has net assets of 595,933.31 Br, according to the ruling of the board.

Chay was established in 1999 by nine shareholders, mostly family members. Its founder Dereje Woldemadhin (PhD) is a commodity expert at the African Union Trade & Industry Department.

The company used its membership on the floor as an intermediary for non-member clients but was preparing to export coffee, prior to the suspension, according to Martha Sahele, deputy administrator of the company.

The company submitted an application along with its audit report on November 29, 2011, notifying the Authority of its financial statements. Based on the report, the officer of market actors at the Authority presented their file to the Law Enforcement Division of the Authority, which proceeded to file charges at the administrative board.

"The absence of founder Dereje for over a year because of the need to attend to his health and debt in Adama (Nazareth)from business activity unrelated to the exchange led to the decrease in net assets, Martha explained at the hearing of the case.

Three board judges, Ibrahim Omer, Asnake Genetu, and Engedawork Tadesse, reviewed the case.

The request was to either revoke or suspend their membership. But, Chay presented its case and explained why their net assets had decreased, so the board decided to give them time to come up with the required money to be able to operate in the market," Ibrahim said.

The company is trying to raise the additional money from its members, according to Martha.

"There is another shareholder who will come from France within the next week, and we will see how we are going to proceed," she said. "We are hoping to raise funds quickly enough, in order to be able to go ahead with our plans of exporting coffee and also start trading in sesame."

Meanwhile, the company has told its clients to approach other members to do their transactions for them until its license is reinstated, according to Martha.

Failure to come up with the money within six months, however, may lead to their membership being revoked, according to Ibrahim.

This is the eighth ruling that the board has given since the establishment of the Authority.

The judges ruled in favour of a member accused of noncompliance with rules in the first case that they heard. They also revoked the license of another member accused of rule violation. Informants and members and the Law Enforcement Division of the Authority can present their cases to the board.

It is not just the Authority that members have to answer to on compliance to the rules. The Exchange itself has compliance officers that can punish and revoke the licenses of clients.

More recently, the Ministry of Trade (MoT)has also been taking a role in deciding who can and cannot trade on the floor.

Despite the fact that it is the Exchange that has the right to directly sell membership seats and the Authority that can approve of membership, the MoT claims a mandate to suspend members through a 2011 coffee directive that prohibits coffee exporters from storing more than 500tn of coffee for more than two months.

The Ministry had banned 57 coffee exporters in October and November 2011, for failure to let it audit their stocks. Some banned members still continued to trade on the floor, despite a letter issued by the Ministry to the Authority and the Exchange, ordering that they cease to do so. There are currently 342 members at the Exchange out of which 245 are full members.


Source: Allafrica