The country is likely to get its first Commodities Exchange Act soon, as the bill has reached the Legislature-Parliament after the Cabinet’s approval.

In the absence of an act, the commodities futures market has so far remained unregulated.

Speculative trading in commodities like precious and industrial metals, petroleum products and agricultural goods, among others, is a major activity on a commodities exchange.

The exchanges usually trade futures contracts, including trading contracts.

According to officials at the Ministry of Finance (MoF), the final draft of the bill received the Cabinet’s approval some two weeks ago. “The bill envisions empowering the Securities Board of Nepal (Sebon) as the regulator of the commodities market,” one of the officials said.

There are around half dozen commodities exchanges in operation in the country, according to the ministry, while more than 50 such exchanges have been registered with the Company Registrars’ Office. 

If the Parliament passes the bill as it is without any amendment, Sebon will be empowered to develop a new exchange operator like Nepal Stock Exchange.

Besides, Sebon can intervene in managing investment consultants, commodities exchange brokers and commodities traders. It will also have the authority to decide which commodities will be traded on the exchange.

Mostly, commodities like gold, crude oil and agricultural products are traded in commodities exchanges. But lack of storage, especially of crude oil and agricultural products, has been a matter of concern.

The bill has authorised Sebon to develop a modality for the storage of these products.

So far, commodities exchanges have been operating without any proper legal framework. After irregularities were seen in the sector a few years ago, the government had asked Sebon to prepare a draft act.

Earlier, a study carried out by Sebon had also revealed many malpractices in the sector, with more than 80 percent of investors losing their money while investing in the commodities market.

Development of a commodities exchange will allow businesses make forward contract and purchase commodities used as raw materials for their production units. This could help them mitigate risks due to possible shortages and price fluctuations.

Sebon’s spokesperson Niraj Giri said a commodity market could help find out the actual demand and supply situation of commodities in the market.

“This can help maintain price stability by minimising risks due to price fluctuations,” he said.