Launching of commodity exchange

It is good to learn that the move to set up a commodity exchange (CX) has gained further momentum as its draft rules are going to be finalised within days. The necessary phases of approval following receiving opinions from stakeholders and the public on the draft rules are also learnt to have been fast tracked. The Chittagong Stock Exchange (CSE), which initially took the initiative to introduce a CX in the country with the nod from the Bangladesh Securities and Exchange Commission (BSEC) may finally see the light of day this year. In this regard, the Multi Commodity Exchange of India (MCX) has been assisting CSE in making its bylaws and regulations based on generic regulatory compliance and international best practices.

The need for establishing a commodity exchange (CX) which is a legal framework to determine and enforce rules and procedures for trading standardised commodity contracts and related investment products cannot be overemphasised. Given the prevailing volatility in the market where both consumers and producers of farm products and other goods are being deprived of their dues, the creation of a secure marketing system for them has been long overdue.

Notably, an effort to this end was made more than one and a half decades back (in 2007). But it could not be materialised thanks to the lack of basic infrastructures such as warehousing facilities, absence of eligible traders and other complexities. Now, with the prospect of having such a platform in the shape of a CX within sight, it is hoped that the existing distortions in the commodity market created by the so-called syndicates or oligopolies could be removed and a level playing field for both producers and consumers could be established. This is also necessary for facilitating proper export and import.  It is worthwhile to note at this point that there is a huge global demand for Bangladeshi agricultural products like tea and jute. So, the establishment of the CX would also help exporters to secure the prices of their products. Similarly, some crucial imports are monopolised by a handful of importers. An exchange market, if properly handled, can help break their monopoly.  To go by an estimate, the worth of Bangladesh's commodity market is over US$144 billion where an enormous quantity of cotton is imported as a basic raw material, one can easily understand the role CX can play here.

However, the CX, also called futures market, is one where traders rarely deliver any physical commodities. On the other hand, what they trade are futures contracts. These are agreements between parties to buy or sell a specific quantity of commodity at a price as agreed at a predetermined date of expiry regardless of what it currently trades in the market.  In case of farm produces, experts are of the view that, a CX allows farmers to lock in prices using forward contracting, thus protecting them against any sharp fall in product price. True, the platform (commodity exchange) as envisaged will trade only gold, cotton and crude oil and run on a non-delivery cash settlement system as it does not require warehouse facilities at the preliminary stage. Even so, there is ample scope for inclusion of a wider range of commodities in the future. Hopefully, once CSE's Commodity Exchange (CX) platform takes wings, Bangladesh will soon be able to see itself among its predecessors in the field in South Asia including India, Pakistan and Nepal.