In the wake of the Chinese (Shenzhen Stock Exchange) acquisition of Dhaka Stock Exchange in 2018, the Chittagong Stock Exchange has been gearing up to comply with the Exchange Demutualisation Act of 2013. This move is a landmark event in the history of Bangladesh’s capital market, with the primary objective of separating trading rights and ownership to ensure a transparent market with heightened accountability, thus avoiding conflicts of interest.
Upon completion of demutualisation, the Chittagong Stock Exchange aims to evolve into a multi-product exchange, embracing commodities, currencies, and other derivative securities. The Managing Director of Bashundhara Group has expressed eagerness to establish a commodity trading platform through the Chittagong Stock Exchange, drawing expertise from India’s largest commodity trading platform, the Multi Commodity Exchange (MCX).
Advantages of Commodity Trading Platform in Bangladesh
Reducing Cost on Imported Goods: In Bangladesh’s increasingly industry-oriented economy, the need for importing raw materials is inevitable. Derivatives contracts can play a pivotal role in hedging against future price fluctuations, safeguarding the country’s economy from potential losses on imports.
Ensuring Fair Prices at Consumer Level: Commodity derivatives can mitigate the impact of syndicates taking advantage of scarcity during calamities, preventing artificial shortages and unjust price hikes on staple food items. Futures or options contracts can create a fair market for consumers by curbing the influence of corrupt practices.
Fair Prices for Farmers (Producer-Level Transparency): Despite agriculture being the backbone of Bangladesh’s economy, farmers often face exploitation within the supply chain. Derivatives markets empower farmers, enabling them to participate directly and receive fair compensation for their agricultural products, disrupting the exploitative practices of intermediaries.
Building an Organised Gold Market (Precious Metals): A derivatives platform can facilitate the trading of precious metals like gold, silver, and platinum, providing a safe investment opportunity. The associated risks can be minimised, making these investments more accessible to a wider range of investors.
Opening Doors for Other Investment Opportunities: A successful commodities trading platform could pave the way for diverse derivative instruments, such as index futures, ETFs, and interest rate futures. This expansion would contribute to GDP growth and attract retail investors with individualistic options and futures contracts.
Challenges of Establishing a Derivatives Platform in Bangladesh
Inclusion of the Affected People (Farmers): The promising concept of a commodity exchange faces resistance from small-scale, less-educated farmers. Technical education initiatives are essential to familiarise them with the new system, aligning their production activities with the contracts.
Sufficient Warehouse Chain Facility: To support upfront production, a nationwide chain of warehouse facilities is crucial. Commodity trading platforms or the government should establish such facilities to prevent spoilage of perishable goods.
Settlement & Delivery Issues: The daily settlement process in commodity markets requires physical deliveries unless “OFFSET.” Ensuring a robust transport communication system is imperative for the smooth operation of the commodity market.
Natural Calamity & Political Tension: Bangladesh’s susceptibility to natural disasters and ongoing political tension in 2023 creates a challenging environment for gaining investors’ confidence. The commodity market, designed to mitigate risks, may face unexpected hurdles, impacting a significant number of investors.
Lack of Skilled Market Operators: With the commodity market still in its infancy, there is a shortage of skilled market operators. Partnerships with established entities, such as India’s MCX, aim to address this gap and ensure the smooth functioning of daily activities in the market.
As Bangladesh navigates the path towards establishing a fully functional derivatives market, addressing these challenges will be instrumental in realising the potential benefits for the economy and market participants. The journey towards a diversified and transparent financial market is a crucial step in Bangladesh’s continued economic growth.