International Financial management

Section: 2
Assignment-2
Submitted to:
Mirza M. Ferdous
Senior lecturer
Department of Accounting and finance
North South University
Submitted By:
Table of Contents

Overview............................................................................................................................3
Commodities trading platforms in neighboring countries...................................................4
India..........................................................................................................................................4
Attributes:....................................................................................................................................................4

Singapore..........................................................................................................................4
Attributes:....................................................................................................................................................4

Acquisition of Chittagong Stock Exchange by Bashundhara Group..................................5

Benefits of a commodity trading platform..........................................................................6
Fair Pricing:..............................................................................................................................6
Risk Management:....................................................................................................................6
Investment Opportunity:..........................................................................................................6
Financial Inclusion:...................................................................................................................6
Market Efficiency:....................................................................................................................6
Challenges of establishing commodity trading platforms....................................................7
Infrastructure Constraints:.......................................................................................................7
Political and Economic Stability:..............................................................................................7
Financial literacy & awareness:................................................................................................7
Regulatory challenges:..............................................................................................................7
References.........................................................................................................................8
 Overview
Commodities are the basic goods that are interchangeable with other goods of the same type.
A commodity trading in simple terms refers to buying & selling of these goods. The global
commodity market was valued at USD 20 trillion in 2019 which is expected to reach USD 24
trillion by 2025. (ZipDo, 2023) With 70% of global value chain depended on international
commodity trading it’s easy to understand importance of commodity trading in global
economy.
To facilitate these commodities trading platforms have emerged which functions as a digital
or physical marketplace wherein participants come to engage in the trading of contracts
associated with commodities, while maintaining to regulatory rules established by the
exchange. Although the history of commodity trading is as old as human history, the
establishment of Chicago Board of Trade or BOT & New York Mercantile Exchange
(NYMEX) in the 19th century paved the path for modern standardized commodity trading
platforms. (ComFin Software , 2022) As technology has marched forward, so too have
commodity trading platforms. The introduction of electronic trading not only reduced the cost
of trading but also allowed access to real time market data, trading tools & communication
channels for the traders.
Investors classified commodities that are traded in commodities trading platforms into four
categories which are agricultural products like coffee and wheat, livestock and meat such as
live cattle and pork bellies, energy products including crude oil and natural gas, and metals
encompassing precious metals like gold and industrial metals like copper. The intricate
interplay of these categories adds layers of complexity to commodity trading. Commodity
exchanges play a crucial role in economic growth by providing a reliable and efficient
marketplace for trading commodities, enabling risk management and hedging activities.
Traders and investors must navigate this landscape influenced by various factors, including
geopolitical events, supply and demand dynamics, and technological advancements to hedge
or make speculative profit.
 Commodities trading platforms in neighboring countries.
India
India, being an agrarian economy has a longstanding relationship with commodities trading.
The roots of organized commodity trading using futures can be traced back to 1875 with the
establishment of the Bombay Cotton Trade Association (BCTA). The landscape of commodity
trading in India underwent a transformative phase with the establishment of the National
Multi Commodity Exchange (NMCE) in 1999, marking the country's entry into electronic
commodity exchanges. Subsequently, in 2003, the Multi Commodity Exchange (MCX) was
established which currently holds 95.24% market share & processes 60% of all commodity
futures trades (MCX, 2023). Presently, India hosts a total of six national commodity
exchanges, including the National Commodity and Derivatives Exchange (NCDEX), Indian
Commodity Exchange (ICEX), ACE Derivatives Exchange (ACE), and Universal Commodity
Exchange (UCX), alongside the pioneering NMCE and MCX.
Attributes: Although, Indian commodity market encompasses broad range of commodities
it has a significant focus on agricultural commodities. Regulated by the SEBI the commodities
market contributes significantly in India’s economy & is expected to reach 983.30bn USD in
2023. (Statista, 2023) In 2017, the country began commodity trading with options contracts
as well due to massive demand. (Padma, 2023)

Singapore
Singapore being one of the leading global financial centers and a highly advanced economy
in Southeast Asia has its roots of commodities trading those dates to 1920s with rubber as
their major export. During the 1960s, Singapore embarked on a strategic diversification of its
commodities trading portfolio, a trajectory that resulted in the establishment of the Singapore
International Commodity Exchange (SICOM) in 1967. In 1994, SIMEX merged with SES &
SCCS to create the Singapore Commodity Exchange (SGX) which acquired SICOM in 2008,
strengthening its role in developing commodities as an asset class. (SGX, 2023)
Attributes: SGX maintains a strong emphasis on commodities that hold relevance to the
Asian region. Mainly Vital commodities like rubber, coffee, and white sugar. SGX also stands
as a pioneer in innovation within the commodities trading industry, consistently leading the
way in developing products and services. This includes ventures into options on futures
contracts and exchange-traded funds (ETFs).
 Acquisition of Chittagong Stock Exchange by Bashundhara Group
The recent acquisition of the Commodity
Stock Exchange (CSE) by the Bashundhara
Group has sparked a noteworthy interest
within the financial industry. ABG Limited, a
subsidiary of Bashundhara Group, became
the strategic investor of CSE, acquiring a 25%
stake in the exchange by purchasing 15.86
crore of shares at 15BDT each for
approximately 238 Crore in line with CSE’s
Demutualization process. (The Business Standard , 2022) Earlier Bashundhara Group's
attempt to launch a private commodity exchange, ABGEX, was denied by the BSEC (Islam &
mahmud, 2022)
Bashundhara Group's primary objective encompassed the establishment of a thriving
commodity exchange market within the national financial landscape. So, this strategic
partnership allowed the group to build a commodity exchange with CSE’s eligible board. The
partnership also aimed to boost growth and development at CSE by infusing capital and
expertise, enhancing market capacity, and attracting investors. It focuses on ensuring
financial stability, implementing effective risk management, and building market confidence.
(The Financial Express, 2022) To manage the exchange the company went in joint venture
with US company to manage the exchange. (Mahmud, 2022) ABG possesses a paid-up
capital of Tk 5 crore, representing 50 lakh shares in total with 49,99,999 shares being
possessed by Anvir. (The Business Post , 2022)
Early 2022, CSE signed MOU with MCX to work as a consultant to establish the project
where they would advise on regulatory compliance, international best practices, bylaws,
regulations, product offerings, clearing and settlement methods & provide a 5-year business
plan. (Habib, 2022) In October 2023, the Commodity Exchange (CX) was established with a
legal framework, featuring a substantial paid-up capital of 4 billion BDT 13 board members,
and 100 million BDT paid-up capital for commodity brokers. Initial trading on the exchange is
expected to include gold, cotton, and crude oil.(The Financial Express , 2023)
 Benefits of a commodity trading platform
Within the domain of financial markets, the value of commodities trading platforms is
undeniable. This innovative platform acts as a catalyst for transformative change in how
commodities are traded in any economy. Some of its benefits are discussed below,

Fair Pricing:
A key benefit of a commodity trading platform lies in its capacity to ensure fair pricing due to
its ability to connect producers with consumers or traders directly without intermediaries.
Due to the transparency in the market the supply and demand determine prices, which
excludes the possibility of manipulation in any way. In Bangladesh, currently the gap
between producers & consumers are huge due to which producers are complaining about not
getting fair price while consumers are complaining about higher prices. This can be easily
solved once the commodity exchange is established.

Risk Management:
Commodities trading platforms use contracts for trading, which plays a pivotal role in
mitigating risk by offering producers a means to hedge against price volatility. Such risk
management instruments will contribute to enhanced stability and predictability for both the
producers and the buyers in the volatile market of Bangladesh.

Investment Opportunity:
There is a lack of investment opportunities for the rising higher middle class of Bangladesh,
the commodity exchange market can solve this problem by presenting new investment
opportunities for both domestic and international investors. (Mithu, 2022)
Financial Inclusion: While traditionally in Bangladesh many small-scale producers
frequently encounter obstacles while trying to access broader markets, primarily due to
constraints in resources & access. As Commodity exchanges facilitate direct communication,
these producers are able to showcase their products to a broader audience, encompassing both
national and international buyers.
Market Efficiency: By establishing a centralized marketplace and leveraging technology,
commodity exchanges not only eradicate barriers and decrease costs but also eliminate
numerous bottlenecks throughout the value chain, thereby reducing losses and waste. This
initiative will contribute significantly to the economic growth of Bangladesh. (Zubaier, 2023)
 Challenges of establishing commodity trading platforms
Infrastructure Constraints:
Insufficient infrastructure, spanning from warehousing to technology, stood out as a major
challenge for Bangladesh while trying to establish a commodity exchange in 2007. (Ahmed,
2022) Certified warehouses play a pivotal role in storing and authenticating the quality and
quantity of commodities that sellers bring. As the efficiency of market relies heavily on these
infrastructures it poses a huge challenge.

Political and Economic Stability:

Commodity trading platforms tries to establish an efficient supply chain but as the country
faces political and economic instability it can cause significant disruption to the supply chain
leading to uncertainty regarding the quality, pricing or the timing of the commodity trade.
Which can create a major challenge to establish a stable & reliable trading platform.
Insufficient knowledge:
limited understanding of the commodities market poses as one of the key challenges in
establishing a commodity trading platform in Bangladesh. Due to lack of proper knowledge
of the primary challenges faced by the commodity exchange center around the execution of
settlements and the establishment of reference prices for commodities. Additionally, the
formulation of a business specification model is a complex undertaking. (The Financial
Express, 2023)

Financial literacy & awareness:

Understanding the commodities trading platform requires understanding of different
components of the system which can be hard to grasp by the general participants due to lack
of financial literacy in the country. Alongside that, educating people to raise awareness about
the platform to ensure widespread participation can be challenging. However, addressing this
challenge is vital, as failure to do so can hinder the overall establishment of the platform.

Regulatory challenges:
The development and implementation of a resilient regulatory framework for commodity
trading platforms in compliance with international standards are essential to uphold market
integrity & safeguard the interests of all the participants. Which can be hard to do as in
Bangladesh inconsistency in regulations are common. So, a proper regulatory framework is
needed for the proper establishment of the commodity trading platform.
References
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%20Most%20Important%20Statistics,2019%2C%20valued%20over%20%248%20trillion.
ComFin Software . (2022, 7 24). The Evolution of Commodity Trading . From LinkedIn :
https://www.linkedin.com/pulse/evolution-commodity-trading-comfin-software-gmbh
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