Commodity exchange to unlock new economic horizon in Bangladesh

In a country where agriculture is the backbone of the economy, stakeholders across the agricultural value chain in Bangladesh — including farmers, importers of grains like lentils and wheat, refiners of edible oils, and producers of agri-based goods — continue to face serious challenges such as unstable prices, financial losses, and lack of clear market information.

Year after year, they are forced to sell at low prices because they don't get timely price updates or reliable buyers.

A major reason behind this problem is the strong presence of price syndicates in the markets for necessary items like agri-produce, edible oil, and essential resources such as fuel and furnace oil.

These syndicates manipulate the market, causing financial losses to producers and importers and burdening consumers with high prices.

Although the immediate focus is on agriculture, a Bangladeshi commodity exchange can also include natural resources such as metals, coal, gas, and industrial minerals, including fuel/furnace oil.

Additionally, trading precious metals like gold will help reflect fair global prices, benefiting local customers and investors.

Against this backdrop, experts and stakeholders are increasingly calling for the establishment of a national commodity exchange — a platform that could revolutionize how producers and buyers interact in the market.

A commodity exchange operates within a defined legal structure — a marketplace where commodities are bought and sold (physically or through contracts).

Trade can be executed on paper or electronically, similar to how shares are traded on platforms like the Dhaka or Chittagong Stock Exchange, while the physical goods reside in stores, warehouses, or fields until they are delivered at an agreed-upon time.

In a commodity exchange, goods are traded either in spot markets for immediate delivery or in derivatives through contracts like forwards, futures, and options that fix the price now for delivery in the future.

Commodities traded in a commodity market are often split into two broad categories: hard and soft commodities.

Hard commodities include natural resources that must be mined or extracted, such as gold, silver, platinum, copper, aluminum, and even steel or iron ore; energy commodities such as crude oil, natural gas, coal, petroleum products, and others.

The soft commodities are generally agricultural or animal products.

Commodity exchanges in the world and southeast Asia

CME Group is the world's leading derivatives marketplace, made up of four exchanges: CME, CBOT, NYMEX, and COMEX. Each exchange offers a wide range of global benchmarks across all major asset classes.

The Chicago Mercantile Exchange (CME) trades commodities primarily in foreign exchanges, agricultural produce, equities, and cryptocurrencies, whereas the New York Mercantile Exchange (NYMEX) trades mainly energy products — refined and crude oils, petrochemicals, biofuels, gasoline, electricity, emissions, natural gas, etc.

Both CME and NYMEX are regulated by the Commodity Futures Trading Commission (CFTC), an independent agency of the United States.

The London Metal Exchange and Tokyo Commodity Exchange are among the most prominent international commodity exchanges.

Both our neighbouring countries, India and Pakistan, established commodity exchanges in the early and late 2000s.

India, one of the largest producers of agricultural commodities globally with two-thirds of its population reliant on farming, established the "Multi Commodity Exchange of India Ltd (MCX)" in 2003.

It benefits farmers, traders, consumers, and the overall economy by helping them know future prices in advance and gain easier access to price information.

The Indian commodity exchange currently includes gold, silver, base metals, energy, and agricultural commodities.

The Pakistan Mercantile Exchange (PMEX), established in 2007, currently facilitates international trading in categories such as metals, energy, agriculture, financials, and local products.

Need for establishment of a commodity exchange in Bangladesh

Bangladesh, as a fast-growing developing economy, faces constant challenges in managing the pricing of key commodities like gold, edible oils, and fuel/furnace oils. These items affect everyone — from family expenses to factory costs and the overall economy.

As there is no proper and open commodity exchange, it becomes easier for certain groups to control prices unfairly, create problems in the supply system, and block access to international market prices.

Until October 2023, there was no separate regulatory framework for the formation of a commodity exchange in Bangladesh, except for Section 2(ccc) and Section 32A of the Securities and Exchange Ordinance, 1969, which mention the development of a commodity derivatives market.

This changed with the introduction of the Bangladesh Securities and Exchange Commission (Commodity Exchange) Rules, 2023, as per the BSEC's notification dated 02 October 2023 in the form of an official gazette.

The newly introduced Commodity Exchange Rules, 2023, explain how a proper and transparent commodity market will operate in Bangladesh.

It outlines the process of registering a commodity exchange, approving which goods can be traded, registering brokers and other participants, and ensuring fair trading through an online platform.

It also explains how trades will be settled either by cash or physical delivery through approved warehouses, and how prices — both current (spot) and future — will be fixed based on real-world market rates.

Overall, these rules aim to make trading goods more fair, organized, and reliable for everyone involved.

Recent developments in the commodity market and exchange in Bangladesh

To support implementation, the Chittagong Stock Exchange (CSE) has partnered with India's Multi Commodity Exchange (MCX) for regulatory consultancy.

On November 20, 2022, ABG Limited, a concern of the Bashundhara Group, acquired 25% of CSE shares, marking the first time a Bangladeshi private company became a strategic partner of a stock exchange in the country.

The agreement, signed in Chattogram, fulfills the requirements of the Demutualization Act 2013 and the Commodity Exchange Rules 2023, which mandate that 25% of a stock exchange's shares can be sold to strategic investors.

Since then, CSE and ABG Limited have been working closely with foreign specialists from MCX to launch operations in Bangladesh.

Final thoughts

The establishment of a regulated commodity exchange in Bangladesh will help set fair prices, ensure market transparency, and reduce financial uncertainty, benefiting farmers, producers, and import-reliant industries.

With strong infrastructure and alignment to global standards, it is expected to boost economic growth, reduce price volatility, and attract investment.

The writer is a chartered accountant and director of S. F. Ahmed & Co., and a member of the Institute of Chartered Accountants of Bangladesh (ICAB).