On May 26, 2011, CME Group announced it executed two historic memorandums of understanding, one with the government of Ukraine and the National Bank of Ukraine, and another with the commodities exchange, Ukrainian Futures Exchange, to look for opportunities to further develop the financial and derivatives market in Ukraine for grain and non-agricultural products. CME Group Magazine spoke with Leo Melamed, chairman emeritus of CME Group, who led the Ukraine project, about what the outcome of this relationship could mean for global commodities markets.

Q&A with CME Group Chairman Emeritus Leo Melamed

What is the significance of these relationships in the Ukraine?

First, the two memorandums of understanding (MOUs) with the government of Ukraine, its central bank and the Ukrainian Futures Exchange (UFE) represent an important step by CME Group to establish our presence in Eastern Europe. This is another example of how we are executing our growth strategy by providing our expertise and capabilities globally in Europe, Asia, the Middle East and Latin America. As the world’s demand for agricultural markets continues to grow, Ukraine plays a key role in grain production with nearly 30 million hectares of arable land. Companies needing to hedge their commodity risk will be able to benefit for the first time from a set of standards established for Ukrainian wheat and knowing they will have the reliability of delivery.

What was the reaction by the Ukrainian government when you first approached them about working together?

When I met with and spoke with Ukraine President Viktor Yanukovych and the Minister of Agriculture and Food Stuffs Mykola Prysyazhnyuk, they enthusiastically expressed their interests as being an economic leader in Eastern Europe. Since his election in 2010, President Yanukovych has had a vision for more free trade, and developing the domestic financial markets is a goal of his in order to open up the nation’s economy to other parts of the world. Both of them understand that risk management of commodities is important to reaching this goal and expressed to me their willingness to work together with us.

Why did you pursue this partnership in the Ukraine?

I actually pursued an initiative in Russia as well as in the Ukraine. Both countries are major growers of wheat. In the Ukraine, I had a longstanding relationship with a former official, Leonid Kozachenko, who was immensely helpful in advancing the Ukraine connection. Not only is Ukraine the world’s sixth-largest exporter of wheat, but the country also hopes to join the European Union. They have high ambitions to be a key economic force in the region. As businesses such as farming, food production and even biodiesel need to meet the rapidly rising demand from both established and emerging economies, they must be able to hedge their risk from weather and other economic factors. As we were talking with market participants about this project, we received very positive feedback that this was a move in the right direction for global food markets.

What is next for working together?

In the next six to 12 months, we will be developing and launching a new futures market based on Ukraine’s Black Sea wheat market. During this time, we will be talking through many of the key details with our new Ukrainian partners, including market regulations, contract specifications and delivery. By listing this contract on our world leading electronic platform, CME Globex, we will be able to immediately let the world manage their risk in this region and help President Yanukovych get another step closer to his vision.