Contract Specifications

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Contract Specifications

Key Contract Terms and Definitions: Source: Section 2 “Interpretation” of KOMEX Rulebook 2023

“Contract” means standardized agreement to buy or sell a specified commodity, detailing the amount, grade and price of the commodity and the date on which the contract will mature and become deliverable for purposes of trading on the KOMEX;

“Delivery” means the tender and receipt of warehouse receipts or any other document of title to goods by issue of delivery order in settlement of a transaction;

“Delivery Centers” means the designated centers where the commodities permitted for trading on the KOMEX can be delivered by the seller for sale at the KOMEX platform or collected by the buyer;

“Grading” means the inspection and assignment of certain quality parameters as specified by the KOMEX for each commodity class;

“Grading Certificate” means a document that contains the quality of the commodity accepted for deposit as per the grading specifications of the KOMEX and is issued by approved agency to the depositor;

Entering into a contract – as per Section 36 of the KOMEX Rulebook 2023;

Margin Calls and Security Deposit – as per Sections 66, 67 and 68 of the KOMEX Rulebook 2023; 

Prices of the Commodities – as per Section 48 of the KOMEX Rulebook 2023;

Rates and Prices for a Contract – as per Section 34 of the KOMEX Rulebook 2023; and

Trading on the KOMEX – as per Part V of the KOMEX Rulebook 2023.

Introduction

Agriculture and related activities are the main source of income and 60 percent of employment for over 80 percent of Kenyans. The sector accounts for more than half of the country’s gross domestic product (GDP). The Government of Kenya (GoK) depends for about 45% of its revenue from this sector. Agriculture also makes up more than 50% of the country’s export earnings. Accordingly, the GoK has placed a great deal of importance and due attention to the development of agriculture in Kenya.

To address the growth and development challenges of the sector, the GoK has expressed a strong policy commitment to supporting the establishment of a public-private sector-led National Commodities Exchange (“the Exchange”). The Exchange will materially impact on the livelihoods of millions of Kenya’s smallholder producers and other actors, in both agricultural and non-agricultural commodity value chains, and the agricultural development led industrialization.

A transparent and efficient marketing system for key commodities in the country helped by the Exchange will have significant economic impact not only in terms of improving the export competitiveness of Kenyan commodities but also in stimulating domestic value addition and processing and other post-harvest activities. A marketing system that enables all actors to participate in a “level playing field” will further enable Kenya to achieve its goals of financial inclusion and support to less advantaged actors in the economy, particularly small-scale farmers and traders, largely operating in the informal economy.

A vibrant Exchange, powered by appropriate information and communications technology (ICT), will also strengthen the vision to place Kenya as an African, and potentially global, powerhouse in ICT. The Exchange shall be regulated by the Capital Markets Authority. A further ambition would be to ensure that a commodity exchange, while initially and primarily serving the needs of the Kenyan economy, evolves to potentially become a regional and continent-wide hub for the structured trading of commodities. The establishment of the Exchange in Kenya should finally be a private sector-led undertaking, with the concrete support and enabling environment provided by the public sector in various ways, such as policy and regulatory support, legal framework, and other measures.

The State Department of Trade, to lead the project for establishment of the Commodity Exchange in Kenya, has hired the Consultants to implement the framework of commodity exchange. A Task Force comprising representatives of relevant line ministries has been set up. It is thus envisaged that the Consultants will work on implementation of the Commodity Exchange in regular close interaction with the Taskforce.

Kenya Vision 2030is the country’s new development blueprint. It aims to transform Kenya into a new industrializing, “middle-income country providing a high quality life to all its citizens by the year 2030”. The adoption of the Vision by Kenya comes after the successful implementation of the Economic Recovery Strategy for Wealth and Employment Creation (ERS) which has seen the country’s economy back to rapid growth since 2002, when GDP grew from a low of 0.6% and rising gradually to 6.1% in 2006. The Vision 2030 is based on three “pillars”: the economic, the social and the political.