The Chittagong Stock Exchange (CSE) is set to launch Bangladesh's first futures markets, or commodities exchange, later this year to reduce the difference of commodities between what consumers pay and what producers get.
Insiders say the opening of the exchange may enable buyers and producers to buy and sell goods at competitive prices and reduce the scope of manipulation in the commodity market, an allegation that is rife in the current times.
A commodities exchange is a legal entity that determines and enforces rules and procedures for trading standardized commodity contracts and related investment products.
Traders rarely deliver any physical commodities through a commodities exchange.
Instead, they trade futures contracts, where the parties agree to buy or sell a specific amount of the commodity at an agreed-upon price, regardless of what it currently trades at in the market at predetermined expiration date.
Sometimes, farmers throw away their potatoes, tomatoes and other agricultural products in anguish over the low prices stemming from inefficient market mechanisms.
An exchange helps increase the liquidity for farmers since it assists them to access funds without any interest.
As a result, they don't need to borrow at higher interest rates from sources such as banks or usurers.
To make the market efficient and ensure proper export and import, a commodities exchange is necessary in Bangladesh. The Bangladesh Securities and Exchange Commission (BSEC) was planning for a futures market, said a BSEC commissioner.
In Bangladesh, the government took an initiative to establish a commodity exchange in 2007. But the initiative did not translate into reality owing to complexities over warehouses and the lack adequate eligible traders, said AB Mirza Azizul Islam, the then finance adviser to the caretaker government.
The BSEC expects to preliminarily include gold, industrial raw materials such as iron ore, and agricultural products, namely tea to the exchange.
The exchange will facilitate the participation of farmers alongside financing for them while the producers will have to avail of insurance.
Among the neighbouring countries, India and Nepal have a number of commodities exchanges.
The earliest recognized futures trading exchange is the Dojima Rice Exchange, established in Japan in 1730 for the purpose of trading rice futures.
Pakistan and Nepal established the commodity exchange in 2007 and 2009, respectively.
Pakistan's commodity exchange market trades gold, cotton, yarn, sugar, rice and wheat, while Nepal allows trading of cash crops, food grains, vegetables, spices, oil seeds, metals and bullion.