India’s MCX enters deal with CSE to build Bangladesh’s first commodity exchange

Multi Commodity Exchange (MCX), the largest commodity trading platform in India and the seventh-largest in the world, has signed an agreement with the Chittagong Stock Exchange (CSE) to provide the port-city bourse with consultancy to build the country's maiden commodity exchange.

The commodity exchange, aimed at creating an efficient market ecosystem for commodities – offering better price discovery, hedging against price risks and an improved supply chain with the help of warehousing and other infrastructure – is expected to be launched this year, said CSE officials.

A commodity exchange creates a marketplace for commodities trading under the set rules and regulations and also promotes the right grades of commodities, especially the agricultural ones. 

The CSE would begin with the low hanging fruits both in terms of the basket of commodities to be traded and the type of trade settlements.

Gold, already having the global price benchmark, is going to be on the inaugurating list of commodities, while a few agro commodities might be included during the maiden trades, CSE Chairman Asif Ibrahim said in a virtual press conference on Monday.

MCX would help CSE select the commodities based on the research and feasibility studies.

The potential is huge as the country has emerged as a large producer and user of many agricultural, industrial and even energy commodities," Professor Shaikh Shamsuddin Ahmed, a commissioner of the Bangladesh Securities and Exchange Commission (BSEC), told The Business Standard.

Commodity exchange would help both the local and international trades through better matchmaking between buyers and selling traders or producers, he said.

Bangladesh is a big producer of tea, jute, rice, potato, vegetables, and fish. It also produces the world's best mangoes in abundance. The country imports a number of agricultural commodities such as wheat and lentils.

The country depends on imports for a wide range of industrial metals, bulk raw materials for various industries, and also fossil fuels.

Buyers, including the end-users and traders – would enjoy access to better and well-regulated sources of their needed commodities as soon as the port city bourse launches its commodity exchange, said CSE Managing Director (In-charge) Md Ghulam Faruque.

End users and producers will enjoy a price hedging opportunity when the exchange will launch its futures contracts that enable buyers-sellers to trade commodities to be delivered at a particular date even several months later, while futures contracts will also make commodity traders' lives easier.

However, the exchange would not begin with futures contracts as it would need a warehousing facility along with the know-how.

"We are going to start with non-delivery cash settlement contracts that would not need warehousing and physical delivery of commodities," he said, adding that the trades would be settled in cash until warehousing and market education are ensured.

The agreement signing ceremony at a city hotel on Tuesday was graced by Commerce Minister Tipu Munshi, BSEC Chairman Professor Shibli Rubayat-Ul-Islam, Indian High Commissioner to Bangladesh Vikram K Doraiswami and the senior officials of the CSE and MCX.

Bangladesh planned for its maiden commodity exchange in the late 2000s, while Pakistan and Nepal began theirs. But the plan was expedited only in the last year when the CSE secured BSEC approval to go ahead.