Tk400cr paid-up capital needed to form commodity exchange

The Bangladesh Securities and Exchange Commission (BSEC) has prepared a draft rules for establishing a fair, efficient, and transparent market for derivatives contracts which will be traded on the commodity derivatives market.

The stock market regulator posted the draft rules on its website on Thursday, and sought public opinion within two weeks to fasttrack the launch of commodity exchange in the country.

As per the draft ‘Bangladesh Securities and Exchange Commission (Commodity Exchange) Rules, 2023’, any commodity exchange must be incorporated as a public limited company under the Companies Act, 1994.

An aspirant company must have a minimum paid-up capital of Tk 400 crore, and it will all the times maintain a net worth of 75 per cent of its paid-up capital.

A commodity exchange is a legal entity that determines and enforces rules and procedures for trading standardised commodity contracts and related investment products.

This commodity exchange, or futures market, may enable buyers and producers to buy and sell goods at competitive prices and reduce the scope of manipulation, which is now allegedly rampant in domestic trades, experts said.

It will be the duty of a commodity exchange to ensure a fair, efficient, and transparent market for derivatives contracts that are traded on its commodity derivatives market.

Also, clearing and settlement of commodity derivatives contracts, including warehouse facilities, risk mitigation, and assayers, will not start until the clearing and settlement company starts its operation.

Those risks associated with its business and operations are managed prudently.

According to the drafted rules, a commodity exchange will have strategic investors, who will be institutional investors in nature, and they will hold at least 10 per cent but not more than 25 per cent shares of the paid-up capital of the exchange.

Its promoters, directors, or shareholders who hold 5 per cent or more shares of the company, are not bank defaulters as per the ClB report, while any of its directors, officers, or employees are not convicted of fraud, breach of trust, or any other criminal offense or are adjudicated as insolvent, as per the draft rules.

Any company that is eligible for registration as a commodity exchange will submit an application to the commission upon fulfilling the above rules with an application processing fee of Tk 10 lakh in favour of the BSEC through a payment order, bank draft, or electronic fund transfer.

Its chief executive officer or managing director will have a minimum of 15 years of working experience in the capital market or commodity derivatives market, while the exchange’s chief operating officer will have a minimum of five-year experience in the operation of the commodity derivatives market.

As per the drafted rules, the commodity exchange will pay an annual fee of Tk 20 lakh in each Gregorian calendar year through a pay order, demand draft, or electronic fund transfer in favour of the BSEC. 

The commission ensures that the interests of the investor, customer, and public at large prevail where they conflict with the interests of the commodity exchange and TREC holders.

A commodity exchange will immediately notify the commission of any action against a TREC holder, commodity derivatives broker, or commodity authorized representative, as per the drafted rules. 

The board of directors of a commodity exchange will constitute committees for ensuring its governance and administration, namely— risk management committee, audit committee, nomination and remuneration committee, product advisory committee, and product advisory committee. 

The exchange will grant an opportunity to be heard to a TREC holder, commodity derivatives broker, commodity authorised representative, warehouse, or assayer, as the case may be, before it reprimands, suspends, cancels TREC, or otherwise takes disciplinary action against the above parties.

If needed, the BSEC may appoint a special auditor at the expense of the commodity exchange to examine, audit, and report, either generally or in relation to any matter, on the books of accounts and records of the commodity exchange.

The securities regulator already gave the go-ahead to the Chittagong Stock Exchange’s (CSE) proposal for a commodity exchange in September 2021 on condition that the right infrastructure facilities and capacity be ensured.

It will start the operation of the exchange for non-delivery cash settlements of three commodities— gold, cotton, and crude oil. Later, it will move towards the physical delivery and settlement of commodities.

In April 2022, the CSE had signed a memorandum of understanding on appointing the Multi Commodity Exchange of India (MCX) as a consultant.

In November 2022, ABG Ltd, a concern of Bashundhara Group, had purchased a 25 per cent stake in the CSE as a strategic partner in line with the demutualisation process.