Hom Nath Gaire
Commodity market, one of the oldest markets of the world, is in practice since the civilization of human being. For centuries, it remained as the core business of the society, physically transferring both the goods and ownership of them. Over time, the present commodity market is turned in to a virtual one and goods are rarely moved from place to place but bought and sold through standardized contracts in an organized commodity exchanges.
Although, CFD (contract for difference) of different commodities, FOREX and other financial instruments were traded by the selected people through unusual means, the organized commodity market is new for Nepal. The trading of the commodity futures in domestic level formally started since December 2006 with establishment of the commodities and metal exchange Nepal Ltd. (COMEN). Mercantile exchange Nepal limited (MEX) started its operations from January 2009 as the second commodity exchange of Nepal. Recently, another commodity exchange named Nepal Derivative Exchange Ltd. (NDEX) has also exposed it in the emerging commodity market of Nepal.
The trading of commodity CFD has been growing rapidly with the handful commodities listed in three commodity exchanges. That has been supported by the very high average turnover of the future exchanges over the average turnover of decades old Nepal’s stock exchange Ltd. (NEPSE). This rapid growth of the Nepal’s commodity market is not a miracle, which has been accompanied by the wonderful growth in the global commodity markets reaching with in a short span of time.
It is well known fact that a structured and noise commodity markets have complimentary role in the overall development of a country’s economy. To take in such encouraging impacts, the growth and sustainability of the market is essential. In such a situation, the commodity market of Nepal has been in front of the following challenges:
First: As per the evidences of last four years the growth of Nepal’s commodity market was good. But the challenge is to maintain the positive momentum by generating a viable and prolonged spot market with the mechanism of physical delivery of commodities. For this, the market is facing some structural as well as institutional bottlenecks such as weak and poor infrastructures including roads, power, irrigation and warehouses; lack of skilled man power; lack of suitable government policy etc.
Second: In order to rationalize the expansion of any sector the stakeholders of this sector should be benefited by one or another way. This is likely only through the vigorous involvement of such stakeholders to maximize their own interests, which has to be backed-up by their sympathetic vis-à-vis the net welfare maximizing factors, through which they can bring positive changes in their life. In the context of Nepal, the stakeholders of an organized commodity market such as farmers, wholesalers, manufacturers, processors, consumers etc. are not fully aware and are not confident about the operation of the market and its favorable impact to them. In this juncture, creating, retaining and accelerating the public awareness and confidence to the market is more challenging.
Third: The commodity market should play the of facilitator to the growth of real sectors of the economy rather than just being a platform for speculators to bet their hard earned money and some time their fixed assets as well. Because of this reason, the commodity market should mainly base on the domestic products of the country and should be guided to raise the wellbeing of the producers as well as end users of such products along with other stakeholders. But the Nepal’s commodity exchanges are highly concentrated in trading of metals, fuels and some foreign market based agro- products. Based on this bitter truth, another challenge of Nepal’s commodity market is to discourage the speculation on global commodities and simultaneously encourage the trading of domestic products by providing price discovery mechanism and developing physical delivery system.
Fourth: The commodity market does not unavoidably deliver goods but prices are preset and purchased in document on the root of rumor. The rumor caused serious and redundant rise in prices of basic goods such as petroleum and food grains, and then the final users will adversely been affected, which has been witnessed by the amazing rise in the price of petroleum products during last some years. Another thing that has to be kept in mind is the commodity market is not totally risk free, it carries considerable amount of risk that must be minimized. Currently, the market participants or more specifically the speculative investors are being benefited due to the persistent bull phase in the market in general and in metals in particular. It is not obligatory to continue such encouraging situation in the market and at any time it might unexpectedly fall down hurting many small investors badly, it might bring some people to the street as well, especially those who have been following the market with out acquiring required knowledge about it.
Fifth: In order to prevent such astonishing and inauspicious impact, and simultaneously to protect small investors, there is a need for the regulator of the commodity market of Nepal with clear cut rules and regulations as well as full autonomy. This is the major challenge of Nepal’s commodity market which is being conducted without regulatory framework and guiding rules and regulations.
Commodity market, one of the oldest markets of the world, is in practice since the civilization of human being. For centuries, it remained as the core business of the society, physically transferring both the goods and ownership of them. Over time, the present commodity market is turned in to a virtual one and goods are rarely moved from place to place but bought and sold through standardized contracts in an organized commodity exchanges.
Although, CFD (contract for difference) of different commodities, FOREX and other financial instruments were traded by the selected people through unusual means, the organized commodity market is new for Nepal. The trading of the commodity futures in domestic level formally started since December 2006 with establishment of the commodities and metal exchange Nepal Ltd. (COMEN). Mercantile exchange Nepal limited (MEX) started its operations from January 2009 as the second commodity exchange of Nepal. Recently, another commodity exchange named Nepal Derivative Exchange Ltd. (NDEX) has also exposed it in the emerging commodity market of Nepal.
The trading of commodity CFD has been growing rapidly with the handful commodities listed in three commodity exchanges. That has been supported by the very high average turnover of the future exchanges over the average turnover of decades old Nepal’s stock exchange Ltd. (NEPSE). This rapid growth of the Nepal’s commodity market is not a miracle, which has been accompanied by the wonderful growth in the global commodity markets reaching with in a short span of time.
It is well known fact that a structured and noise commodity markets have complimentary role in the overall development of a country’s economy. To take in such encouraging impacts, the growth and sustainability of the market is essential. In such a situation, the commodity market of Nepal has been in front of the following challenges:
First: As per the evidences of last four years the growth of Nepal’s commodity market was good. But the challenge is to maintain the positive momentum by generating a viable and prolonged spot market with the mechanism of physical delivery of commodities. For this, the market is facing some structural as well as institutional bottlenecks such as weak and poor infrastructures including roads, power, irrigation and warehouses; lack of skilled man power; lack of suitable government policy etc.
Second: In order to rationalize the expansion of any sector the stakeholders of this sector should be benefited by one or another way. This is likely only through the vigorous involvement of such stakeholders to maximize their own interests, which has to be backed-up by their sympathetic vis-à-vis the net welfare maximizing factors, through which they can bring positive changes in their life. In the context of Nepal, the stakeholders of an organized commodity market such as farmers, wholesalers, manufacturers, processors, consumers etc. are not fully aware and are not confident about the operation of the market and its favorable impact to them. In this juncture, creating, retaining and accelerating the public awareness and confidence to the market is more challenging.
Third: The commodity market should play the of facilitator to the growth of real sectors of the economy rather than just being a platform for speculators to bet their hard earned money and some time their fixed assets as well. Because of this reason, the commodity market should mainly base on the domestic products of the country and should be guided to raise the wellbeing of the producers as well as end users of such products along with other stakeholders. But the Nepal’s commodity exchanges are highly concentrated in trading of metals, fuels and some foreign market based agro- products. Based on this bitter truth, another challenge of Nepal’s commodity market is to discourage the speculation on global commodities and simultaneously encourage the trading of domestic products by providing price discovery mechanism and developing physical delivery system.
Fourth: The commodity market does not unavoidably deliver goods but prices are preset and purchased in document on the root of rumor. The rumor caused serious and redundant rise in prices of basic goods such as petroleum and food grains, and then the final users will adversely been affected, which has been witnessed by the amazing rise in the price of petroleum products during last some years. Another thing that has to be kept in mind is the commodity market is not totally risk free, it carries considerable amount of risk that must be minimized. Currently, the market participants or more specifically the speculative investors are being benefited due to the persistent bull phase in the market in general and in metals in particular. It is not obligatory to continue such encouraging situation in the market and at any time it might unexpectedly fall down hurting many small investors badly, it might bring some people to the street as well, especially those who have been following the market with out acquiring required knowledge about it.
Fifth: In order to prevent such astonishing and inauspicious impact, and simultaneously to protect small investors, there is a need for the regulator of the commodity market of Nepal with clear cut rules and regulations as well as full autonomy. This is the major challenge of Nepal’s commodity market which is being conducted without regulatory framework and guiding rules and regulations.
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