Problems of creating metals exchanges as joint-stock companies and prospects for their growth

Abstract

The tumultuous process of creating exchanges in the ongoing transition to a market economy is necessarily affecting sectors which produce a commodity typically traded on exchanges metal. In Moscow alone, three large special metal exchanges have recently begun operation the "Metals Exchange" (June 1991), the "Moscow Nonferrous Metals Exchange" (July 1991), and "Russian Metal" (RTSB November 1991). Specialized metal exchanges have been formed in the Ukraine, Kazakhstan, and other nations of the CIS, and nearly all of the large exchanges have set up special sections for metal products. There is already a trading market for such products, and a keen competition is developing between the different exchanges. The lead in this market will be taken by the exchange that can offer its stockholders and members the best prospects for growth and provide its brokers with the best opportunities for gain. It should be noted that that our leading metal exchanges bear little resemblance to classic international metal exchanges such as the London Metals Exchange (LME). The latter is a typical exchange and is one of the largest commodity trading centers in the world. Thus, the founders and managers of the exchanges in our country are very interested in the mechanism and organizational principles of its operation. The London Metals Exchange was organized in 1882 as the company "Metal Market and Exchange Company, Ltd." The exchange is a wholesale market for goods where deals are made for metal of a certain quantity at market prices. The exchange is a unique barometer of prices on the world nonferrous metals market. It is used to judge and establish the quality of metal and sets forth standard conditions for exchange contracts. The stock capital is 20,000 pounds sterling and is divided into 1000 ordinary shares costing 20 pounds each. The shareholders are all members of the exchange and must own at least two shares to enjoy the full rights of membership. The members of the exchange (about 100 companies) are divided into two categories: individual (principal) members, who have the right to conclude deals in their name; member-representatives (plenipotentiaries), who can make deals in the name of companies or corporations they represent. There is a small group of individual members who are in a priviledged position by virtue of the ability to conclude deals in the trading pit on their personal accounts and, for a fee, execute orders from non-priviledged members and third parties. The commissions thus earned range from 0.1 to 0.5% of the sale price in the case of copper and from 0.25 to 1% of the same in the case of lead and zinc. Non-priviledged members of the exchange generally pay lower brokerage fees than third parties. Shareholders and members of the exchange must be natives and residents of England. Individual members must be at least 21 years of age, as must the member-representatives and directors of the shareholding companies. All company shareholders must be English citizens, while at least 2/3 of the directors must also be citizens and residents of the country. The members of the exchange are chosen by the board of the exchange company by simple majority vote with at least 3/4 of the board present. New members are chosen by open ballot, but a secret ballot can be requested by any member of the board. The features of operation of our exchange stand in sharp contrast to the LME. First of all, a very limited number of metals is traded on the London exchange, and all of them are nonferrous metals. Our metal exchanges as most present domestic exchanges are of a universal character. Not only are all types of metal products traded, but so are many other goods. The exchanges are in essence large trade centers. And although most of the largest domestic exchanges began to specialize after prices were freed and a new law governing exchanges was enacted, they remain more diverse than the LME. This is due first of all to the lack of other channels for the sale of large quantities of metal products at market prices. In addition, the worsening shortage of all of the most important groups of commodities (at least for the short term) makes it almost mandatory that deals be concluded by barter which in turn requires broadening of the range of goods that can be traded.