International Financial Management (FIN444)

Section – 02 | Spring 2023

Assignment 2

Submission – June 18, 2023

Submitted To:
Mirza M. Ferdous (MzF)
Senior Lecturer
Department of Accounting & Finance

Name ID
Saad Bin Ahmed 2021377630
Saad Amin 2014311630
Rayan Rashik 2012823030
Sanjida Shahabuddin 2012432630
Shadman Shabbir 2013255630
What are commodities trading platforms?

Commodities trading platforms are online marketplaces that allow purchasing and selling of
numerous commodities. Commodities include oil for transport, gold, wheat, natural gas, and
metals such as gold, silver, and aluminum.
For traders, investors, and speculators to engage in commodity markets, these trading platforms
offer a centralized marketplace. They let users trade commodities online, reducing the
requirement for a physical presence on a trading floor. They give access to global commodity
markets, allowing individuals to trade commodities from all over the world. Users may manage
their trading accounts, monitor their portfolios, check transaction history, and use many account-
related services through the site.
Commodities trading platforms often include various trading tools and services, such as real-time
market data, charting tools, order placement, and trade execution features. Commodities trading
platforms can offer risk management instruments, such as options contracts and futures contracts,
to assist participants in hedging against price changes and controlling their exposure to
commodity markets. Risks associated with commodities trading include price volatility,
geopolitical concerns, supply and demand imbalances, and weather patterns. Both people and
organizations must evaluate and manage these risks to make wise trading decisions. To benefit
from price fluctuations, speculators engage in commodity trading. They are more interested in
profiting from price changes by buying cheap and selling high rather than having a direct interest
in owning or using the commodities in their physical form.
In comparison to other well-established international markets, the commodity trading industry in
Bangladesh is still very new and needs more liquidity. Infrastructure and the legal framework for
trading in commodities are currently being developed. As a result, the market may only be open
to institutional investors or specifically qualified people, and the choice of commodities and
trading volumes may be restricted.

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Commodities Trading Platforms in Neighboring Countries

Bangladesh has not developed a strong commodity trading platform, but our neighboring
countries like India have this kind of platform. In India, they have developed an exchange
commodity market where it's very easy to exchange products from the issuer to the holders.
Currently, the forward markets commissions allow future trading in India for around 120
commodities (Angelone, 2023). It's a great way for investors to diversify their portfolios.

Multi Commodity Exchange of India (MCX): MCX is the first listed Exchange in a state-of-
the-art commodity derivatives exchange that facilitates online trading of commodity derivatives.
The Exchange started operating in November 2003 under the regulatory framework of the
securities and Exchange Board of India (SEBI) (mcxindia, 2023). They have accomplished a lot
during this long journey like: "MCX and Chittagong Stock Exchange Limited (CSE),
Bangladesh, signed a consultancy agreement to collaborate for the establishment of the first
commodity derivatives platform in Bangladesh on April 12, 2022" (mcxindia, 2023).

Indian Commodity Exchange (ICEX): ICEX is a SEBI-regulated online Commodity

Derivative Exchange. Headquartered in Mumbai, the Exchange provides a nationwide trading
platform through its appointed brokers. Prominent shareholders like MMTC Ltd, Central
Warehousing Corporation, Indian Potash Ltd, KRIBHCO, Punjab National Bank, IDFC Bank
Ltd, Gujarat Argo Industries Corporation, Reliance Exchange next Ltd, Bajaj Holdings &
Investment Ltd are enlisted in this market (ICEX, 2023). ICEX is the first Exchange in India to
adopt a global hi-tech platform that ensures automatic and seamless switch-over from its Data
Center (DC) to the Disaster Recovery (DR) site with zero data loss in case of exigencies (ICEX,
2023).

National Multi Commodity Exchange of India (NMCE): NMCE started its trading on
November 26, 2002. It integrated the centuries-old commodity market with the longest
technology in India. It is supported by the compulsory delivery-based settlement to ensure public
fair-trade practices. Plantation, spices, food grains, non-ferrous metals, oil seeds, and their
derivatives are all traded on an electronic platform by NMCE (NMCE, 2022). NMCE follows the
best international risk management practices to give the best exchange option to investors.

National Commodity and Derivative Exchange (NCDEX): NCDEX is a professionally

managed online commodity exchange with a wide range of products that sets the standard for
both agricultural and non-agricultural derivatives sectors. NCDEX was incorporated as a public
limited company on April 23, 2003, and commenced operations on December 15, 2003, as a
recognized body under the Forward Contracts (Regulation) Act 1952 (NBDEX, 2023). It became
a deemed recognized stock under the regulation of the Securities and exchange board of India

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(SEBI) (NBDEX, 2023). NCDEX prices are widely regarded as a benchmark for domestic and
international commodity markets. Its price is also listed as the international benchmark price.
Acquisition of the Chittagong Stock Exchange (CSE)
A concern of Bashundhara Group, ABG Limited, bought 25% stake of the Chittagong Stock
Exchange (CSE) for Tk. 238 crore. ABG bought 15.86 crore shares of the CSE at Tk. 15 each.
The group applied to the commerce ministry in order to seek approval for its global marketplace
named ‘ABG Marketplace’. Bashundhara Group plans to set up a private marketplace featuring
barter, auction, warehousing and securities transactions alongside regular business-to-business
and business-to-person trading of all kinds of goods. According to them, farmers, producers,
middle-income people, small entrepreneurs and the unemployed will benefit if the marketplace
was allowed to set up.
Later on, the main purpose of ABG Limited was to become a strategic partner of the CSE in
order to establish the country’s first commodity market. According to the Chairman of CSE, this
deal would lead to the development of the country’s capital market. The partnership deal was
done after Bashundhara Group was denied permission to set up an independent private
commodity exchange because according to the BSEC, only the DSE and CSE was allowed to set
up a commodity exchange. As a result, the CSE was the first to get approval from the BSEC to
establish a commodity exchange in Bangladesh.
The Bashundhara Group also set up the Bashundhara Gold Refinery Limited to produce gold
domestically with the help of loan from different banks which covered 70% of the costs of the
operations. Following the agreement signed with ABG Limited, the Chittagong Stock Exchange
will begin its commodity exchange operations with gold along with the co-operation of the
Bangladesh Jewellers’ Association (BAJUS).

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How Would It Affect the Prices and Distribution of Commodities?
In Bangladesh, there are four types of financial markets: money market, Taka Treasury Bond
Market, capital market, and foreign exchange market. In Bangladesh, there is no derivative
market. However, this does not imply that the derivatives market in Bangladesh has no potential.
Bangladesh is a rising nation with a burgeoning economy. If we are successful in establishing a
derivatives market, it will have a significant beneficial impact on the financial markets and the
economy.
i) Market players can use derivatives to allocate, manage, or exchange exposure without trading
an underlying in the cash market. Derivatives also provide more operational and market
efficiency than cash markets, allowing users to establish exposures that are not possible in cash
markets. A stronger financial position promotes a higher volume of lending, which spurs the
growth of industries across the economy.
ii) Bonds, currency, stock, and short-term interest rate assets are all protected from diverse risks
via derivative markets. As it contributes to overall financial market stability, the derivatives
market may play a critical role in strengthening the effect of monetary policy and absorbing
foreign money into a country. It can help commercial banks create an effective capital structure
and boost their profit-making capabilities. Derivatives can be used by banks to hedge risks
associated with their operations. For example, a bank's financial profile may render it sensitive to
interest rate changes. To safeguard itself, the bank might buy interest rate futures. Alternatively,
a pension fund can protect itself from loan default.
iii) Derivative trading allows you to hedge your cash market position. For instance, if you
purchase a positional stock in the cash market, you may then purchase a Put option in the
derivative market. If the stock falls in value in the cash market, the value of your Put option will
rise.
iv) When an investor purchases a derivative contract on the open market, he or she is deemed to
be purchasing the right to execute it. However, he is not compelled to carry out its option. Non-
binding contracts, then, offer an advantage and give a great deal of flexibility in carrying out the
investment strategy. Extreme returns are now possible for investors, which may not be the case
with classic financial instruments like as bonds and equities. In contrast to equities, investors
may fast double their money when they engage in derivative markets. Derivatives also allow
people to gain access to markets and resources that might otherwise be inaccessible. People can
borrow money at a lower or more beneficial rate of interest by using interest rate swaps.
v) Provides a centralized marketplace where customer can trade their commodities easily and
create more liquidity. Customers will also discover reflective prices based on the supply and
demand. However, it has a great risk of price volatility as this market will have a wide range of
customers, speculators will come here to make profit which will instigate the prices to fluctuate.

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But the best thing is, in this market people will have the opportunity of hedging by which they
will be able to manage their exposure to commodity price fluctuations.

Possible Problems From the Emergence of Such Trading Platforms

The emergence of trading platforms in Bangladesh has the potential to have a significant positive
impact, opening up more benefits for economic growth and better access to financial markets.
However, it also brings up several issues, especially when viewed from the perspective of a
developing nation like Bangladesh.
Making wise investing selections in Bangladesh may be hampered by people's lack of awareness
of the rules, risks, and operations of growing trading platforms. Without financial literacy
training, Bangladesh's limited investor understanding may lead to uninformed decisions and
potential financial losses in online trading. To ensure compliance and avoid legal issues and tax
evasion, trading platform emergence requires clear regulations on securities dealing, capital
gains taxation, and reporting. Moreover, inadequate technological infrastructure poses trading
platforms with dangers such as system failures, data breaches, and technical difficulties,
requiring reliable connectivity, power supply, and cybersecurity measures to avoid uncertainty.
And responsive customer assistance and effective dispute resolution are essential to retaining
investor confidence. So, technical issues, transaction problems, and disagreements should be
handled quickly.
In addition, Regulation enforcement and investment protection are often challenging for
developing nations like Bangladesh. Online trading platforms risk endangering unsuspecting
investors by attracting fraudulent schemes and scams. Inadequate regulation and oversight could
lower investor confidence and obstruct the development of the Internet trading ecosystem.
Another challenge is the risk of market manipulation and volatility. Bangladesh may struggle to
identify and stop market manipulation techniques like insider trading or pump-and-dump scheme
due to a lack of effective monitoring tools and market surveillance measures. These actions
might result in distorted market prices and jeopardize the reliability of trading platforms.
In conclusion, the rise of trading platforms in Bangladesh provides several obstacles and possible
opportunities for economic development and financial inclusion. The digital gap in terms of
internet access and technological infrastructure, insufficient regulation and investor protection,
and the possibility of market manipulation are a few of them. These issues require a
comprehensive strategy that includes education and awareness campaigns, infrastructure
development, an effective market surveillance mechanism, and strengthened regulation.

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