Comparative Study on Current Trading System and Online Trading: The Case of 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. 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 experts. Descriptive statistics was used to analyze the data. 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.