CSE eyes launching currency derivatives

Following its moves to launch commodity trading opportunities in the country, the Chittagong Stock Exchange (CSE) now wants to add financial derivatives, starting with currency, to its basket of future products.

The port-city bourse has already written to the securities regulator and the central bank, expressing its interests and requesting enabling regulations, said Md Ghulam Faruque, acting managing director of CSE.

If launched, currency derivatives would help with the price discovery of the major currencies, help users of the currencies manage their currency risks through their positions in derivatives, and also give investors a platform for hedging, he added.

According to Investopedia, derivatives are financial contracts, set between two or more parties that derive their value from an underlying asset, group of assets, or benchmark. Prices for derivatives derive from fluctuations in the underlying asset.

Faruque said, "The Bangladesh Securities and Exchange Commission has given us the derivative rules based on which we are going to launch commodity futures in a non-delivery cash settlement fashion. The existing regulations also allow equity derivatives, which may enable us to launch equity index futures contracts."

However, the securities regulations have yet to allow financial derivatives like those on currencies.

Another CSE official said there is no legitimate way for people in Bangladesh to trade currencies for speculative gains, and many do it through online brokers in a clandestine way or hoard foreign currencies to sell them at a higher price later.

The first way is money laundering by legal definition, while the second one hurts the actual users of foreign currency during volatile periods, he said, adding that the planned currency derivative would bring all the speculators to trade on the CSE platform.

Even in India and Pakistan, people trade derivatives against equity, currencies, and commodities.

Furthermore, the majority of derivative contracts are settled in cash.