Thrust on introducing commodity derivatives exchange in country

Speakers at a seminar underscored Saturday the need for introducing a commodity derivatives exchange in Bangladesh as it helps hedge price fluctuations and mitigate the risks in case of any stock market crash.
For an efficient launching of derivatives here, they stressed the need for wide dissemination of knowledge and creation of awareness among all the stakeholders including the regulators, businesses, investors and farmers.
Pearl Institute of Financial Market (PiFM) arranged the half-day seminar on "Demystifying Derivatives" at a hotel in the city.
Noted entrepreneur Syed Manzur Elahi gave the welcome address at the programme while a pool of international experts on the issue discussed the derivatives highlighting their own country's experiences at different sessions of the workshop.
They also placed various suggestions that will facilitate diversification of the yield-hungry financial market in Bangladesh.
The experts included Managing Director of Thailand Futures Exchange Kesara Manchusree, former managing director of Singapore Mercantile Exchange Vaidthanath Hariharan, deputy head, derivatives dept of Stock Exchange of Thailand Woranoot Kongtanakomtunyakit, Seyed Amin Afsahi of Iran Mercantile Exchange, Ahmad Fadhlan Yahaya of Islamic Research and Training Institute, IDB Group, Alireza Naserpoorasad, senior expert in derivatives and Islamic contracts, Iran Mercantile Exchange and Dr Sami Inrahim Bin Al-Suwailen, PHD, head, financial product development centre, Islamic Development Bank (IDB).
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; the other two being equities and debt. It includes mainly four types of financial contract: futures, forwards, swaps and options.
Mr Manzur Elahi said agriculture is very important in the densely populated Bangladesh; it's the credit of the farmers of feeding over 150 million people; but they are disheartened because of not getting fair price of their products.
Highlighting the derivative's mechanism to find out a solution in this respect, Mr Elahi urged the government to take effective measures to ensure fair price of the agricultural products through derivatives.
Explaining reasons for organising the workshop, PiFM Managing Director Wali-ul Maroof Matin said, "Derivatives are a scientific way to hedge risks."
"This is a tool for diversification. In my analogy of market as my dress, I would say derivatives are like a shoe. Without it we are walking barefooted in our investment markets," he said.
"If we had a derivatives market, the risk of loss in the recent stock market debacle here could be mitigated. The losses, people made, could be kept within a tolerable limit," he said.
After the crash, the government responded appropriately; its reform plan distinctly mentioned establishment of commodity derivatives exchange, he added.
Last week, after reaching a milestone reform on demutualisation, the Bangladesh Securities and Exchange Commission (BSEC) made it clear in the press that "Its next reform implementation action will be for establishing commodity derivatives."
"As derivatives are approaching forward, we must understand it, know its nitty-gritty, fasten our belt of knowledge for better and wider business environment in the offing," he added.
Speaking on the occasion an expert said, "As a late comer in derivatives market, Bangladesh's advantage is to learn from the collapsed market and build a better platform".
The regulator should play a role to support the system by having a more regulated environment and the market players also need to spend effort on product development, which is more risk absorbent, he said.
Highlighting importance of Shariah-based products as more safe for the market, another speaker mentioned the subprime crisis in the US and debt crisis in Europe as a 'wake-up call' to many Islamic bankers to go back to basics, and put the derivatives product back to a drawing board.
In this respect, he stressed the responsibility of product development team to come forward and structure the right Shariah-compliant products for the right use.