The Chittagong Stock Exchange (CSE) plans to launch the country's first-ever commodity exchange this year, says CSE chairman Asif Ibrahim.
The proposed exchange will primarily showcase gold bar and some agricultural products in the warehouse, he told a virtual press conference on Monday.
As part of the move, the port city's bourse will enter into a contract with the Multi Commodity Exchange of India Ltd (MCX) at a city hotel today (Tuesday).
The MCX will facilitate the CSE to frame rules and regulations as well as identify products for the long-awaited commodity exchange.
The CSE will work on the MCX with formulating business rules, by-laws and regulations, development of a five-year business plan, business rules specification, trading and market surveillance, clearing and settlement, collateral management and risk management system, product identification, product development and contract.
The MCX will also help make specifications with at least three contracts initially, warehousing, delivery infrastructure and partnership/broking model, human resources requirement assessment, training and capacity building measures for the key internal & external stakeholders, commodity course module development & certification, regulatory engagements, reference pricing mechanism and setting of spot price, formation of price and product advisory committees.
"An organised commodity market is the need of hour in Bangladesh to play a key role in price discovery, and for development of an efficient commodity ecosystem in the country," says Md Faisal Huda, deputy manager and CSE product development committee member secretary.
He was presenting an overview of the establishment of first-ever commodity exchange in Bangladesh.
Mr Huda says a corn farmer can lock in a price for his crops months before they are even harvested.
"This process increases business survival among farmers, and the exchanges always make sure there is a buyer for every seller, provided their prices meet."
For an emerging economy like Bangladesh, he says, the commodity market will result in reduction of post-harvest losses through price stability, improvement in commodity price risk in both locally produced and imported supplies and credit risk management, provision of a transparent and competitive price discovery mechanism, reduction in transaction and marketing costs.
A commodity exchange is an organised marketplace where buyers and sellers come together to trade commodity-related contracts following rules set by the exchange.
The technological structure, regulatory structure are kind of similar to a stock exchange where spot settlement and futures with physical or cash settlement are practiced and settlement or risk management can also be run through central clearing counterparty.
The CSE identified some challenges, including engagement of manifold regulatory bodies and involvement of different third parties which may incur delays or confines in approval processes, absence of a structured spot exchange in Bangladesh which might make the reference price pulling process intricate.
