First commodity exchange by this year

The Chittagong Stock Exchange (CSE) plans to launch the country’s first commodity exchange, or futures market, this year in a bid to reduce the difference in commodity prices between what consumers pay and what producers get .

Insiders say the opening of the commodity exchange could allow buyers and producers to buy and sell goods at competitive prices and reduce the scope for manipulation in the commodity market that would have plagued the world. internal trade.

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“Our producers complain that they are not getting fair prices while consumers are paying far too much. Such disparities can be dissipated through the commodity exchange,” said Shaikh Shamsuddin Ahmed, Commissioner of Bangladesh Securities and Exchange. Exchange Commission (BSEC).

Sometimes farmers throw away their potatoes, tomatoes and other agricultural products in fear of low prices resulting from inefficient market mechanisms.

To make the market efficient and ensure proper export and import, a commodity exchange is needed in Bangladesh, he said, adding that for this, the BSEC is planning a futures market.

A commodity exchange is a legal entity that determines and enforces rules and procedures for trading standardized commodity contracts and related investment products.

Traders rarely deliver physical commodities through a commodity exchange.

Instead, they trade futures contracts, where parties agree to buy or sell a specific amount of the commodity at an agreed price, regardless of its current market price on a predetermined expiry date.

According to experts, a commodity exchange allows farmers to lock in prices using futures contracts. It also reduces the risk of a drastic price drop.

An exchange helps to increase the liquidity of the farmers as it helps them to access funds without any interest. Therefore, they do not need to borrow at higher interest rates from sources such as banks or loan sharks.

In order to launch the market, the port city stock exchange is expected to sign a memorandum of understanding with the Multi Commodity Exchange of India (MCX) tomorrow to appoint him as a consultant.

In 2003, MCX became one of the first exchanges to open in India.

It provides a platform for price discovery and risk management in various segments including industrial metals, energy and agricultural commodities.

MCX will recommend statutes and regulations based on generic regulatory compliance and international best practices, products, clearing and settlement methods, trading and surveillance systems and warehousing, delivery infrastructure and models of partnership.

It will also offer benchmark pricing mechanisms, spot pricing and pricing advisory board functionality; use third-party data and practical market trends; train market players; and develop a consolidated five-year business plan.

MCX will share sample business rules so CSE can develop or customize their own rules to expedite the project.

In Bangladesh, the government took the initiative to establish a commodity exchange in 2007. But the initiative did not materialize due to complex warehouses and lack of adequate eligible traders, AB Mirza said. Azizul Islam, then financial adviser to the interim government. .

“The country also lacked the necessary warehouse infrastructure,” he told the Daily Star yesterday.

The CSE, which got the preliminary green light to establish the exchange from the BSEC last year, hopes to roll out the exchange in the current year. The BSEC plans to preliminary include gold, industrial commodities such as iron ore and agricultural products, namely tea, in the exchange.

The exchange will facilitate the participation of farmers as well as their financing while the producers will have to benefit from insurance.

BSEC Commissioner Ahmed said there is global demand for some of the country’s agricultural products such as tea and jute, and using the stock exchange even for exporting the products would help producers to obtain fair prices.

“Some of our crucial products are imported by a few companies, so prices and quality are entirely determined by their actions,” he said.

“The swap would help break the union, subject to effective management,” he added.

Bangladesh’s commodity demand and imports are of such huge volume that they sometimes affect commodity prices at the Chicago Board of Trade (CBOT), he said. The CBOT is the world’s largest commodity exchange established in 1848.

Like any developing country, Bangladesh needed such an exchange during its formative years to have an efficient commodity market.

Among neighboring countries, India and Nepal have a number of commodity exchanges.

The first recognized futures trading exchange was the Dojima Rice Exchange, established in Japan in 1730 for the purpose of trading rice futures.

Pakistan and Nepal established commodity exchanges in 2007 and 2009, respectively.

Among African nations, Ethiopia launched the commodity exchange market in April 2008, followed by Kenya.

African commodity exchanges only trade agricultural commodities, while Indian commodity exchanges trade many goods, including cash crops, food grains, plantations, spices, oilseeds, and metals.

Pakistan’s commodity exchange market trades gold, cotton, yarn, sugar, rice and wheat, while Nepal allows trading in cash crops, food grains, vegetables, spices , oilseeds, metals and ingots.

Bangladesh imports a huge amount of commodities, so the commodity exchange will protect against price swings, said Sadeq Zaman, managing partner at PwC Bangladesh.

“Instead of a fixed price, it would work to establish a competitive price.”

“As the MCX has a lot of experience and the economic conditions are similar, their inclusion will be extremely beneficial to us,” he said.

However, it will take time to reap the benefits as the exchange has only just come into existence, he added.

The objective of the market is to reduce the price gap between consumers and producers, said Md Ghulam Faruque, Acting Director General of CSE.

It will also help in discovering a future price, so that growers can realize the future price of a product. “So once agricultural products are included in the exchange, our farmers will benefit.”

In the first phase, the goal is to trade gold, cotton and crude oil.

“The MCX team will work to find what products would be feasible for our market. Then we’ll decide on the final products,” Faruque said.

The market will operate on a non-delivery cash settlement system, so warehouse infrastructure is initially not needed, he said, adding that the CSE would primarily need IT infrastructure to do operate the exchange.

“People don’t know much about it, so technical know-how is also needed. We’re going to train our workers with the help of MCX.”

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