CSE still awaits registration for maiden commodity exchange

The operation of the country's first commodity exchange is unlikely to start anytime soon as the port city bourse has not even got the registration/licence from the stock market regulator.
The Bangladesh Securities and Exchange Commission (BSEC) published a gazette of the Commodity Exchange Rules in October last year to establish commodity exchange (CX).
After the gazette notification, the Chittagong Stock Exchange (CSE) said it would launch the exchange within the next six months. But little progress has been made since then.
"From our side, we have provided all related papers to the securities regulator [for registration]," said CSE Managing Director M Shaifur Rahman Mazumdar.
"We have to do a lot of work after getting the licence."
Formulation of regulations, establishment of IT infrastructure and a separate clearing and settlement system, and formulation of products advisory committee are major tasks, said Mr Mazumdar, adding that the CSE would strive to begin operation of the proposed CX by October.
Market experts, however, are skeptical about such a possibility.
"The CSE might need more time [than until October] to complete the process. But for the maiden commodity exchange, the securities regulator should examine [documents] properly before allowing registration," said Prof Abu Ahmed, former chairman of the economics department of the University of Dhaka.
He emphasized the need for a transparent and efficient platform so that no one can manipulate the system.
Mohammad Rezaul Karim, spokesperson of the BSEC, said the stock market regulator had been scrutinizing relevant documents. "The registration of the CX would be granted if the criteria stipulated in the rules are met."
A commodities exchange is a legal entity that determines and enforces rules and procedures for trading standardised commodity contracts and related investment products.
A commodity exchange needs huge investment in infrastructure for physical delivery of goods. However, the initial operations of the CX being limited to cash settlements would not require infrastructure, such as a warehouse.
The commodity exchange will allow farmers to lock in prices using forward contracting. That will in turn reduce the risk of unexpected price fall and avert uneven ups and downs of commodity prices.
Primarily, the CSE is planning to launch the commodity exchange for two or three products --- Gold, cotton and crude oil, said the CSE managing director.
As per the rules, the CX's minimum paid-up capital will be Tk 4.0 billion while the minimum paid-up capital required for each commodity broker will be Tk 100 million.
A commodity exchange enables the trading of future commodity contracts, where traders agree to buy or sell goods at a negotiated price on a predetermined date.
The CX will function as a subsidiary of the port city bourse.
The operations of the CX closely resemble those of stock exchanges. TREC (trading right entitlement certificate) holders execute transactions of listed securities, while commodity brokers manage the trading of commodities on the CX.
Like the TREC holders, the commodity brokers will have to comply with the risk-based capital adequacy rules. In that case, the rules can be relaxed a bit for the commodity brokers.
Like the TREC holders, the commodity brokers will also open consolidated customers' account (CCA) with any scheduled bank.
This account will be maintained only for the deposit of the money received from and for, and for payment of money to and for clients.
Traders will be allowed to purchase a contract, subject to payment of a 5-10 per cent margin or security money paid to the exchange.
After the purchase, the contract can be transacted through a new contract. In that case, the original buyer will receive the gain only or will pay the amount of loss incurred in the transaction.
On completion of the maturity period of the contract or contracts, the sellers will receive cash equivalent to their net position and the margin.
Commodity brokers will charge a commission for the transactions of the contracts.
The main challenges of the CX's operations lie in executing settlements and setting reference prices for commodities. The formation of a business specification model is also a complicated process.
Nexus of middlemen is a much-talked-about issue in Bangladesh as consumers in many cases are unable to purchase commodities at fair prices because of them. Producers and peasants are also deprived of fair prices of their products.
It's expected that the full operations of the commodity exchange will offer an opportunity to curb the influence of middlemen in commodity trading.
In September 2021, the securities regulator allowed the CSE to go ahead with its proposal to establish the country's first CX.
In April 2022, the CSE appointed Multi Commodity Exchange of India Ltd (MCX) as a consultant to help frame rules and regulations for the CX. The CSE invested $0.7 million for the consultancy, software and hardware platform.
In November 2022, ABG Ltd, a concern of Bashundhara Group, purchased 25 per cent stake in the CSE as a strategic partner in line with the demutualisation process.
Apart from complying with the demutualisation process, the objective of including ABG Ltd in the CSE board was to run the CX effectively.

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