SEC to finalise rules this month to speed up launch of commodity exchange

The Bangladesh Securities and Exchange Commission (BSEC) is set to approve the draft rules of the country's maiden commodity exchange (CX) this month to fast track the launching of the exchange.
The final approval will, however, come from the regulator on receipt of public opinions.
The Chittagong Stock Exchange (CSE) will get the licence for the long-awaited commodity exchange by the end of this year, said Mohammad Rezaul Karim, an executive director of the BSEC.
It will start the operation of the exchange for non-delivery cash settlements of three commodities -- gold, cotton and crude oil. Later, it will move towards physical delivery settlement of commodities.
As per the draft rules, the paid-up capital of the CX will be Tk 4 billion while the paid-up capital will be Tk 200 million of each commodity broker.
A commodity exchange is where future commodity contracts are traded, in which traders agree to buy or sell goods at a negotiated price by a predetermined date.
The proposed CX will be a subsidiary of the port city bourse.
The securities regulator has organised a workshop on the draft rules to be held at its office on July 25. The objective of the workshop is to receive opinions from officials of different ministries, including finance, industries, and agriculture ministries.
Representatives from Tariff Commission, Export Promotion Bureau, Dhaka Chamber of Commerce & Industry, Bangladesh Garment Manufacturers and Exporters Association, Central Depository Bangladesh Limited, Dhaka and Chittagong bourses and banks are also expected to attend the programme.
The commodity exchange will have brokers to trade in contracts on behalf of traders, individuals and businesses. The settlement will be executed through Central Counterparty Bangladesh Limited (CCBL).
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.
A commodity exchange needs huge investments in infrastructure for physical delivery of goods.
However, the initial operations of the exchange being limited to cash settlements would not require infrastructure, such as a warehouse.
The securities regulator gave the go-ahead to the CSE proposal of a commodity exchange in September 2021 on condition that the right infrastructure facilities and capacity be ensured.
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 US $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. was to run the CX effectively.
Challenges lie in executing settlements and setting reference prices for commodities. The formation of a business specification model is also a complicated process.
One of the significant advantages that the commodity exchange can offer is elimination of influence of middlemen in trades of goods.
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.

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