The commodity exchange in Kyrgyzstan deals in sugar and molasses—and now there are plans to reform it

The Jogorku Kenesh approved in the first reading a draft law “On Commodity Exchanges,” which is intended to reform exchange trading in the country.

The initiative appears particularly timely given the current state of the market. Today, the Kyrgyz Stock Exchange’s commodities and raw materials platform is effectively used only for the sale of sugar and molasses.

Thus, despite the existence of exchange infrastructure, a fully-fledged commodities market has not yet taken shape in Kyrgyzstan.

Low liquidity, weak business participation, and the dominance of over-the-counter transactions effectively prevent the commodity and raw materials market from developing. As a result, the commodity exchange fails to fulfill its key function: setting market prices for a wide range of goods.

The bill just approved by parliament is aimed at creating a fully-fledged commodity exchange system. It provides for:

• the introduction of transparent pricing mechanisms;
• requirements for the financial stability of exchanges;
• the development of electronic trading platforms;
• the creation of guarantee funds;
• the possibility of conducting government procurement through exchanges;
• as well as the approval of a list of commodities required for exchange trading.

It is expected that once the law is enacted, exchange trading will extend beyond individual commodity items and become a fully-fledged market instrument.

It should be noted that the bill has so far been approved only in the first reading, and even then with comments that must be addressed by the second reading.