A well-structured commodity exchange in five years

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The Chittagong Stock Exchange (CSE) has begun its work to establish a well-structured commodity market within five years to ensure fair prices for consumers, producers and farmers.

Chairman of the port city stock exchange, Asif Ibrahim, said this in an interview with the FE.

The pioneering role played in the automation of the country’s securities market and the establishment of its depository authority inspired the port city stock exchange to take up the challenge of creating the first commodity exchange (CX).

“Based on its previous experience, CSE has taken on the challenge of establishing the country’s first commodity exchange which will be a good business model for all of us considering the country’s commodity volumes,” said Mr Ibrahim.

He said that a structured and regulated commodity market was necessary in this country in the context of macroeconomic figures such as the priority of purchasing power and the size of GDP (gross domestic product).

“A commodity exchange is long overdue,” said CSE Chairman Ibrahim.

A commodity exchange is a legal entity that determines and enforces rules and procedures for trading standardized commodity contracts and related investment products.

Following an initial agreement from the regulator, the CSE identified different areas and scopes of work on the development of statutes, rules and regulations.

“The Commodity Exchange will be a subsidiary of the Port City Exchange and its existing shareholders will have stakes in the exchange,” Ibrahim said.

Asked about the initial investment for the commodity exchange, the CSE chairman said that more investment would be required after the cost of the software and hardware platform is taken over and the development consultant is appointed.

He said the initial investment for the consultant and the software and hardware platform was US$0.7 million.

Asked about the warehousing facility for the commodity exchange, the CSE chairman said that the warehousing facilities would be secured through contracts to be signed with other stakeholders.

“Leading business houses in Chittagong have expressed interest in offering warehousing facilities.”

CSE will ensure a commercial understanding of the use of its storage facilities.

“A sub-contracting model will be developed for the warehousing facilities. The CSE will provide some facilities while the rest of the facilities will be outsourced.”

Asked about the risk factors, Mr Ibrahim said they may face many challenges as the country has not yet seen any commodity exchanges.

“The challenges lie in enforcing regulations and setting benchmark prices for commodities. Forming a trade specification model is also a complicated process.”

Central counterparty Bangladesh Limited (CCBL) will soon set up its operation and facilitate settlements in commodity exchange, he said.

“Where there is a beginning, there is a destination. I believe a structured commodity exchange will be visible within five years in Bangladesh.”

The nexus between middlemen is a much talked about problem in Bangladesh as consumers are often unable to purchase products at fair prices due to the nexus between the former. And producers and peasants are also deprived of the due price of their products.

In this regard, the CSE President said that agricultural cooperatives at the rural level would be linked to the commodity exchange.

“New cooperatives will also be formed to trade in their products. They will feel comfortable trading in an assured market.”

Eventually, intermediaries will have to change their business model taking into account the interests of consumers and farmers, said the president of the CSE.

He said the CSE is getting huge support from the political level as relevant ministries are very enthusiastic about the establishment of the commodity exchange.

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