Hopes settlement service will reduce counterparty risk

Hopes Clear's secure settlement service will reduce counterparty risk in grains industry


Grains
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A secure contract settlement service used in-house by the Clear Grain Exchange is now available for use with all grain contracts.

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Natham Cattle, Clear Grain Exchange, says opening up the company's secure contract settlement system for outside users is a logical next step for the company.

Natham Cattle, Clear Grain Exchange, says opening up the company's secure contract settlement system for outside users is a logical next step for the company.

A NEW contract clearing service may help growers reduce their counterparty risk by only releasing the title of ownership of the grain when payment clears.

The Clear Grain Exchange (CGX), which operates primarily as a trading platform for sellers and buyers of grain is opening up its secure settlement service for all grain contracts, even if the grain is not marketed on the CGX, in a move that has won approval from grower groups.

One of the major features of CGX, which was set up in 2008, has been the secure payment system for trades, where no grain is released without funds and no funds released without title of ownership of the grain, a system made possible via Clear's online exchange.

Previously, the secure payment service was only available for Clear contracts, but CGX managing director Nathan Cattle said it would now be opened up to all deals provided the grower and broker or buyer were registered with CGX.

It is expected growers will look seriously at the clearing system as a means to minimise counterparty risk.

There have been a number of cases of high profile grain trader insolvencies where growers have been left with significant bad debts after selling to buyers on terms as long as 60 days.

Wade Dabinett, chairman of Grain Producers South Australia, said anything that could reduce risk in an affordable manner would be welcomed by growers.

"If there is something for a reasonable price, which this contract settlement system appears to be, and it can reduce the risk of farmers not getting paid for grain they've worked hard to produce then I think its definitely going to have a fit in some circumstances," Mr Dabinett said.

"All the time we're working to reduce those red flags which mean more counterparty risk and getting payment terms sorted so you are paid quickly for grain is the best thing you can do."

Mr Cattle said the contract settlement service is available to registered grain growers, brokers and buyers in all regions of Australia, for any contract of sale.

Importantly this extends beyond grain stored in the bulk handling system but for ex-farm or delivered buyer contracts, which has been where many problems with non-payment have originated.

The service will be available for both grain stored in warehouse or for ex-farm or delivered buyer sales, with the latter two incurring a slightly higher cost due to the extra administration work required.

Mr Cattle said the company saw the move into contract settlement as a logical expansion.

"CGX has always provided contract settlement to protect sellers and buyers of grain in warehouse traded via our online exchange," he said.

"Growers and industry have been seeking alternatives to protect against non-payment of grain contracts and we are pleased to help provide a solution."

In terms of the logistics of using the process users must refer to 'CGX Contract Settlement' as the mechanism for payment when finalising a sales contract.

They then provide the contract or broker note to CGX which will manage the settlement process from there on.

There is no risk of funds being caught up should CGX run into financial difficulties, as the funds are held in a trust managed by an independent custodian.

The story Hopes settlement service will reduce counterparty risk first appeared on Farm Online.

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