Futures, forwards should go first for launching in BD

Commodity derivatives exchange that the authorities are mulling over to launch in Bangladesh in the near future can help the farmers get fair price of their crops, an international expert on derivatives said.
"Under the 'Future', one of the four types of the derivatives, the farmer can sell their crops even before production, facilitating them to gain fair price as per their expectation." Kesara Manchusree, Managing Director of the Thailand Futures Exchange (TFEX), told the FE in an interview recently.
"However, the farmers need to ensure quality of the products as up to the standard during the exchange," Ms Kesara said.
Ms Kesara Manchusree was in Dhaka to attend a workshop on derivatives at a hotel in the city.
Elaborating the issue, Ms Kesara said, "The farmers can get fair price under the 'Future', because the system let them to know their products' price in advance."
"And accordingly, they can decide on producing their crops in advance and thus manage their risks," she added.
If they (farmers) are not satisfied with the offered price, they might not cultivate the crops (such as potato or others), and they also might change the products; "this is the benefit if the Future derivative", Ms Kesara said.
For an efficient launching of the derivatives, very new concept in Bangladesh, the TFEX managing director strongly underscored the need for educating all the market players including the regulator and the farmers.
She also laid stress on the need for arranging different programmes such as seminar, workshops etc for educating the market players and creating awareness among all the stakeholders in the country.
"As it is a very new concept, all the market players need to be educated about the matter," she said.
Derivative is a financial contract, which derives its value from the performance of another entity such as an asset, index or interest rate. It is one of the three main categories of financial instruments; other two are equities and debt.
Ms Kesara said that there are four types of financial contract. These are Futures, Forwards, Swaps and Options. The first two ones should go first for launching, she added.
Explaining the types of the derivatives, the TFEX managing director said, "One of the main benefits of the derivatives is that it mitigates the business risks."
In a query, she said the government should form cooperative of the famers to tie up them with the urban wholesalers in order to make the 'Future' concept functional, ultimately boosting the economy.
In this connection, the government can guide the farmers, she said.
To create awareness on the concept, she proposed arranging of different programmes such as seminar and workshop and even advertisements in media by the authorities concerned.
Ms Manchusree presented her discourse titled "A Financial Market without Derivatives".  Broad objective of the presentation of Kun Kesara was to highlight the need of an organized and regulated derivatives exchange and how it fit in the wide scenario of investment markets. She mentioned that derivatives
Kun Kesara briefly mentioned about the development of the derivatives markets in the world.  She presented a chart showing some of the major market and their activities in derivative.  
In Thailand there are two derivatives exchange.  The other one, owned by the government is an 8 years old project and yet to make profit.  Kun Kesara told her story of success.  She mentioned that education of market participants is the key.  Her organization is arranging 365 awareness programme every year.  Other challenges she mentioned were expansion of customers, product development, trading and clearing systems development, liquidity and regulatory issues.
 On regulatory issues, which was among the first things to address during establishment of the Derivatives Exchange in the country, the Thai parliament passed a complete set of law titles Derivatives Act 2546.  The act empowered the Securities and Exchange Commission to oversee Exchange Traded Derivatives as well as OTC Derivatives.   
The Exchange Traded Derivatives include stocks, Indices, bonds, interest rates, gold, oil and a range of other commodities.
She mentioned that Derivatives, for Commodity, stock exchange products and currency, are absolute requirement for investment risk mitigation and as financial safeguard.
Citing her experiences, Kun Kesara called for one single multi asset class derivatives in one economy. She stressed on the importance of a quality consortium in the shareholding, business model development that should include product plan, marketing plan and close member relation.