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Maiden commodity exchange by this year
Aims to cut price difference between production-consumption levels
AHSAN HABIB
The Chittagong Stock Exchange (CSE) is planning to launch the country’s first commodities exchange, or futures market, this year, aiming to reduce the price difference of commodities between what consumers pay and what producers get.
Insiders say the opening of the commodity exchange may enable buyers and producers to buy and sell goods at competitive prices and reduce the scope of manipulation in the commodity market now alleged to have been rampant in domestic trades.
“Our producers lament that they don’t get fair prices while consumers are paying far too much. Such disparities may dissipate through the commodities exchange,” said Shaikh Shamsuddin Ahmed, commissioner of the Bangladesh Securities and Exchange Commission (BSEC).
Sometimes, farmers throw away their potatoes, tomatoes and other agricultural products in anguish over the low prices stemming from inefficient market mechanisms.
To make the market efficient and ensure proper export and import, a commodities exchange is necessary in Bangladesh, he said, adding that for this the BSEC was planning for a futures market.
A commodities exchange is a legal entity that determines and enforces rules and procedures for trading standardised commodity contracts and related investment products.
Traders rarely deliver any physical commodities through a commodities exchange.
Instead, they trade futures contracts, where the parties agree to buy or sell a specific amount of the commodity at an agreed-upon price, regardless of what it currently trades at in the market at predetermined expiration date.
According to experts, a commodity exchange allows farmers to lock in prices using forward contracting. This also reduces the risk of a drastic price drop.
An exchange helps increase the liquidity for farmers since it assists them to access funds without any interest. As a result, they don’t need to borrow at higher interest rates from sources such as banks or usurers.
In order to launch the market, the port city bourse is scheduled to sign a memorandum of understanding (MoU) with the Multi Commodity Exchange of India (MCX) tomorrow to appoint it 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 across varied segments, including industrial metals, energy and agricultural commodities.
MCX will recommend bylaws 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 partnership models.
It will also suggest reference pricing mechanisms, setting of spot price and functionalities of a price advisory committee; employ third-party data and practical market trends; train stakeholders on the market; and develop a five-year consolidated business plan.
MCX will share sample business rules so that the CSE can develop or customise that of its own to expedite the project.
In Bangladesh, the government took an initiative to establish a commodity exchange in 2007. But the initiative did not translate into reality owing to complexities over warehouses and the lack adequate eligible traders, said AB Mirza Azizul Islam, the then finance adviser to the caretaker government.
“The country also lacked necessary infrastructure of warehouses,” he told The Daily Star yesterday.