Commodity exchange to launch soon

A commissioner of the securities regulator has provided assurance of the soon-to-be-established commodity exchange (CX), which will feature non-delivery cash settlements for three commodities.

The assurance was given during a workshop titled "Commodity Exchange: Prospects and Challenges" held at the Bangladesh Securities and Exchange Commission (BSEC) office on Tuesday.

According to BSEC Commissioner Prof Shaikh Shamsuddin Ahmed, there is a huge prospect for a CX considering the country's large market size. However, he also acknowledged that there are many challenges and obstacles in establishing the CX.

Representatives from the central bank, revenue board, tariff commission, and different ministries, including finance, industries, and agriculture, attended the workshop.

The primary focus of the workshop was to discuss the draft rules and gather feedback from the participants on the proposed commodity exchange.

A commodity exchange is a platform where future commodity contracts are traded, with traders agreeing to buy or sell goods at a negotiated price by a predetermined date.

The BSEC officials said the draft rules for the commodity exchange would be finalised within three days, upon receiving written opinions from different stakeholders.

"Once we have the stakeholders' written opinions, the draft rules will be presented at the next commission meeting," said BSEC Executive Director Mohammad Rezaul Karim.

During the workshop, BSEC Commissioner Dr Rumana Islam also spoke, while Mr Karim presented a keynote paper on the proposed CX.

After the draft rules are approved, public opinion will be sought within the next 14 days to finalise the rules for the final opinion.

It is expected that the Chittagong Stock Exchange (CSE) will be offered registration of the CX within this year. The proposed CX will operate as a subsidiary of the port city bourse CSE.

Initially, the CSE will start the CX operations with non-delivery cash settlements for three commodities: gold, cotton and crude oil. Subsequently, it will transition towards the physical delivery settlement of commodities.

According to the draft rules, the paid-up capital of the CX will be Tk 4 billion, with each commodity broker requiring a paid-up capital of Tk 200 million.

Traders will be allowed to purchase a contract, subject to payment of a 5-10 per cent margin or security money to the exchange.

After the purchase, the contract can be transacted through a new contract and in that case, the original buyer will either receive the gain or pay the amount of loss incurred in the transaction.

Upon the completion of the maturity period of the contract(s), sellers will receive cash equivalent to their net position and the margin.

Commodity brokers will charge a commission for the transactions of the contracts.

The securities regulator approved the CSE proposal for a commodity exchange in September 2021, on the condition that the right infrastructure facilities and capacity be ensured.

Upon receiving the BSEC's initial consent, the CSE appointed Multi Commodity Exchange of India Ltd (MCX) as a consultant in April 2022, to assist in framing rules and regulations for the CX.

In November 2022, ABG Ltd, a concern of Bashundhara Group, purchased a 25 per cent stake in the CSE as a strategic partner in line with the demutualisation process.

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