First Commodity Exchange Sees The Light

Country launches first commodity exchange Withering away uncertainties and ushering new change.

It is indeed a good news that country's first commodity exchange market is about to see the light. Bangladesh Stock Exchange and Commission(BSEC) has awarded Chittagong Stock Exchange (CSE) the licence to operate commodity exchange(For more read the news"CSE Gets Conditional License" by The Business Standard).Metals,agricultural commodities and hydrocarbons will be traded here at negotiated price. It will pave the path for trading futures contracts that are agreements made today to be completed at a future date. Bangladesh will be the fourth country in the subcontinent to operate commodity exchange market after India,Pakistan and Nepal.

My guess is that initially gold,coal,crude oil,LNG,rice,tea,sugar,wheat,edible oil,pulses,flower etc will be traded.Big traders cum importers,rice dealers,captive power plants, consumer goods company, super shops,posh restaurants and hotels,e-commerce platforms,banks and individual investors will be benefitted tremendously from the introduction of commodity exchange market. Banks and individual investors will see new areas of investment and unlike the stock market, the market will be opened till the midnight, ensuring trading and business activities almost an entire day. Super shops and e-commerce platforms will have better bargaining possibility with the suppliers and will see their profit margin improve significantly. Consumer goods companies and hotels will procure ingredients at negotiated prices, alleviating the uncertainties.

Commodity market is pretty volatile. Recently we have witnessed how sky rocketing prices in kitchen market squeezed the pockets of consumers from all walks of life. Unpredictability of kitchen items caused a great deal of unease among the consumers, policy planners and the true businessmen. To figure out the future market price is increasingly difficult in the context of Bangladesh. Commodity exchange market to some extent allows predictability over the prices of commodities that matter to us. The prices of commodities will be documented in the futures contracts. And markets will get information about the price based on the volume of trading of the futures contracts at the exchange. Moreover,such formal arrangement of commodity trading will draw more traders and new entrants into the commodity market. And thanks to spread of information, consumers will get regular information/update about the future prices of the commodities,which they currently do not avail.

While awarding the contract, BSEC laid down that a consumer good company had to sell its share of a brokerage firm that holds share of CSE. BSEC in this case differentiated between the interests of regulator and those of key player. But we often see producer/importer of intermediate goods also holds significant market share of the final good. In addition, such companies operate media outlets and have access to easy/cheap capital,giving it tremendous leverage over pricing of key commodities. It is no crime to go for vertical or horizontal expansion for producing an item,but proper intervention is needed when market share crosses 30% for both the intermediate goods and final goods. I think Bangladesh Competition Commission should intervene more often and regulate such overwhelming market dominating activities. In the west, we see regulators barred major operating software maker to launch new services/product that may curtail competition, discouraged production houses to launch satellite TV network fearing further market concentration, imposed punitive tariff over search engine companies to allow more competition in the industry. We expect similar moves in this country. Awarding license of commodity exchange is a precursor to an information-based market economy that will become more competitive and rescue the consumers and producers from market uncertainties.