Bangladesh is moving closer to launching its commodity derivatives market, with the Bangladesh Securities and Exchange Commission (BSEC) processing licences for seven brokerage firms in the first phase.

The seven firms that have applied for commodity derivatives broker licences are LankaBangla Securities, B-REACH, Sohel Securities, Island Securities, Royal Capital, UCB Stock Brokerage and National Life Securities. The BSEC will review whether the applicants meet the required eligibility criteria and conditions before making a final decision.

BSEC Executive Director and spokesperson Abul Kalam said the licensing process for the seven brokers that meet the initial requirements is underway. He said the market is initially planned to introduce cash-settled contracts for gold and silver.

Under cash settlement, the underlying commodities will not be physically delivered. Instead, the difference between the contract price and the predetermined settlement price will be settled in cash.

Physical delivery is planned at a later stage after approved warehouses and systems for assessing the quality and purity of commodities are established.

Following gold and silver, the BSEC plans to introduce commodities such as copper, cotton and crude palm oil. The regulator aims to develop the commodity derivatives market primarily as a hedging mechanism to help market participants manage price volatility.

Importers, exporters, major commodity traders, producers and refinery companies will be able to participate in the market.

A conventional capital market brokerage licence will not be sufficient to conduct commodity derivatives business. Brokers will require a separate licence, while other brokerage firms may apply for such licences in the future if they meet the prescribed requirements.

Meanwhile, the Chittagong Stock Exchange (CSE), the country’s first commodity exchange, has also advanced preparations for launching the market. The exchange has established the necessary systems for matching, order processing and risk management.

Over the past two years, around 200 traders have received training, while 15 brokerage firms have been prepared to participate in the market.

The CSE has planned an investment of Tk 120 crore for the commodity exchange project, of which around Tk 80 crore has reportedly already been spent.