Launch of commodity exchange to take time

April 29, 2014

BSEC body suggests developing infrastructure
The introduction of a commodity market by the Bangladesh Securities and Exchange Commission will take time as a BSEC committee has suggested that the regulator should develop proper infrastructure before the launch of the market on which commodities are bought and sold for future delivery. The committee in a recent study report observed that allowing any entity to launch commodity market before developing proper infrastructure might cause risk to farmers as well as to consumers and might create opportunities of malpractices in the market, a BSEC high official told New Age.
The BSEC, after completion of demutualisation of the stock exchanges, has moved to launch derivative and commodity markets and to form a separate clearing corporation for the capital market following government instructions.
As part of the plan, the BSEC on March 4 formed three separate committees to prepare guidelines for commodity and derivative markets and clearing corporation.
Clearing corporation is an organisation associated with an exchange to handle confirmation, settlement and delivery of transactions, fulfilling the main obligation of ensuring transactions being made in a prompt and efficient manner.
For introducing a commodity exchange a clearing corporation is a must.
Derivative market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets.
‘The committee has studied data of around twelve countries regarding rules, regulations and other infrastructure which are required for formation of a commodity market,’ a member of the committee told New Age.
The committee also visited the Chittagong Tea Auction Market and found that the entire infrastructure, including grading and warehouse, for the commodity market was available there, he said.
All short of commodities will be traded on the commodity market once it will start functioning.
‘That will require exact data regarding commodities, building warehouses, grouping farmers and identifying eligible buyers and sellers. Visiting commodity markets running with all the facilities are also required for the regulator to move ahead,’ he said.
To fulfil all these requirements, it might need at least another one and a half years to start the initial function to launch commodity market in the country, the committee member said.
He also said that the government might introduce commodity market with international commodities including oil, gold and iron, but it would require amendment to the foreign exchange regulation.
The pre-study for introducing a commodity exchange will include feasibility study, infrastructure requirements and existing infrastructure, rules and regulations of other stock markets, potential investors and investment requirements for the commodity exchange, a BSEC official said.
The BSEC, as part of precondition of getting ‘A’ category membership of International Organisation of Securities Commissions, an association of organisations that regulate the world’s securities and futures markets, included the authority in its ordinance to allow commodity exchange.
Earlier in December last year, the BSEC had disallowed Bangladesh Jute and Commodity Exchange and Popular Jute Exchange Limited to run committee market and asked them to scrap ‘commodity exchange’ from their names as the regulator then was not prepared to allow them for conducting such services.

-with New Age input

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