Commodity exchange to build ‘eco-system’ in country’s futures market

The country's maiden commodity exchange is set to roll out in November this year with the trading of wheat, cotton and gold. The Chittagong Stock Exchange (CSE) has already started work to launch this "futures market". Asif Ibrahim, chairman of the port city bourse, talked to The Business Standard about the initiative at length.

"Recently, there has been instability in the country's commodity market for no apparent reason. Even after 50 years of independence, we have not been able to establish a formal structure of demand and supply. In these realities, commodity exchange is an urgent need for the economy of Bangladesh at the moment," he said.

The commodity exchange market will build a formal "eco-system" to address the problems we are currently facing in the commodity market, added the CSE chairman.

Asked what a commodity exchange is, he said, a commodity exchange is a system where various commodities are traded. The transactions take place either on paper or electronically. The product remains in a shop, warehouse or field. From there, it is finally disposed of or handed over after a certain time.

According to the Securities and Exchange Ordinance 1969, any product such as agricultural items, livestock, fish, forest resources, minerals and energy products can be traded under the commodity exchange. The exchange or organisation that is formed to trade these products will be known as a commodity exchange.

Asif Ibrahim said suppose onions are traded through the commodity exchange. Directly a farmer or the owner of cold storage, who owns the product, can sell the onions. And anyone can buy this onion through the commodity exchange. A time limit will be fixed for the final settlement of this onion trade. At that time, the person who will have the purchase order will be given the sold onion.

Through the futures market, a farmer or entrepreneur will go into production after being sure of the price of their products before the start of the season. In this way, the commodity exchange will work to build a secure marketing system. Through this, farmers and farmers' cooperatives will be sure to get a fair price. At the same time, there is no risk of crop failure, so buyers will get the product at a fair price, he added.

Asif Ibrahim said it is the job of the commodity exchange to build consumer relationships with marginal producers. It can be local or international.

CSE has entered into a five-year agreement with Multi Commodity Exchange (MCX) of India as a consultant to build the country's first commodity exchange.

Asif Ibrahim said the study is underway in two stages to build the commodity exchange market in Bangladesh. Under the agreement with MCX, two primary and secondary studies are being conducted. There, the type of product and the basis of the contracts will be decided. In this market, alongside the domestically produced goods, imported products can also be traded here.

"We will primarily formulate the bylaws, business rules and regulations. The rules and procedures that we will prepare will be finalised in consultation with BSEC, the Bangladesh Bank, Financial Institutions Division of the finance ministry and various government agencies," he said.

The Commodity Exchange Market will be 100% owned and managed by CSE, he added.

The apparel industry will benefit

According to the CSE chairman, research has shown that the size of the commodity market in Bangladesh is more than $144 billion. Only for the country's garment sector, a huge amount of cotton has to be imported from abroad. The garment industry will benefit if the companies that buy cotton in the country and the companies that sell cotton internationally can be brought to the commodity exchange market.

Asif Ibrahim said, "We have seen that our garment exporters have suffered due to the huge increase in the price of cotton in the world market in the last year. If these transactions can be done through futures contracts, then the garment exporters will benefit."

The CSE chairman said the MCX would examine the possibility of trading in all commodities such as cotton, crude oil, wheat and gold. If MCX recommends the sale of the products, then the activities of the new exchange will be started with the initial three products. Otherwise, the initial activities will be started only through the trading of gold or gold bars. Later other products will be added step by step.

Asif Ibrahim said if commodity exchange transactions are started with gold, then the existing gold traders of the country will be involved in participating in these transactions.

"This will ensure the quality of the gold and the product as well as the market-based pricing. At present, the price of gold is fixed by the associations involved in the gold business. When gold starts trading on the exchange, the price will be determined automatically based on multiple domestic and foreign bargains," he added.

Chattogram getting a warehouse

A warehouse is an important component of commodity exchange. In the developed world, warehouses are outsourced. The CSE chairman said an industrial group in the port city had already agreed to build a large-scale warehouse on its site. Also, many more are showing interest in this.

Neighbouring India, Pakistan, Nepal and almost all the countries of the world have commodity exchange or commodity exchange centres, but in Bangladesh so far the matter was stuck at the experiment level.

In April 2007, the government took an initiative to conduct a feasibility study. Then in 2008 late Waliul Maruf Matin, former managing director of CSE, applied to the finance ministry and BSEC for the establishment of a commodity exchange. For this, he also set up a company named Commodity and Derivatives Exchange Bangladesh (CDX). But in the end, he did not get the approval.

After overcoming all obstacles, in October 2021, the CSE got the initial consent to establish the "Commodity Exchange" for the first time in the country. However, the CSE has to fulfil some of the conditions set by the BSEC before the full operation can begin.