Sri Lanka to Call EOI for Commodities Exchange

29th September 2010, www.lankabusinessonline.com

Sri Lanka will shortly call for international expressions of interest to set up a commodities exchange, and the successful bidder will have to assist in developing a regulatory framework, a top official said.

"We are going to call for expressions of interest (EOI) to set up a commodities exchange," deputy director general of the Securities and Exchange Commission Malik Cader told senior executives at the LBR-LBO chief executive officers forum in Colombo.

"It will be an international tender, we want to very transparent on that. There is a lot of interest from big players."

The EOI will be called before the end of the year, Cader said.

The successful bidder would also help develop a regulatory framework.

"It will be another SEC like thing," Cader said. "We need to do the regulatory framework; we want a full package of the whole thing."

Commodities exchange trade notional spot as well as futures contracts. The contracts however can be settled in cash or physically.

The exchange will also have to be linked with facilities like warehouses for physical delivery, Cader said.

Sri Lanka has the opportunity to even develop an international contract in tea, provided a benchmark blend can be agreed upon. Such a contract if priced in a currency like the dollar can even be traded on other exchanges.

Trading a contract on other exchanges provide access to larger pools of liquidity. In March 2010 Chicago Mercantile Exchange launched dollar a crude palm oil contract in partnership with Malaysia with final settlement tied to the Malaysian Ringgit contract.

Domestic currency denominated contracts have less international appeal as currency fluctuations have to be separately accounted and provided for.