Commodities market shares 15pc of GDP

KATHMANDU, May 17: 

Nepali commodities market, which does not have a regulatory body, has a turnover that consists of 15 per cent of country’s Gross Domestic Product (GDP).

“The result of a study shows that the annual trading of the commodities market is as high as Rs 2 billion which comes to around 15 per cent of the GDP,” pointed out an official of Securities Board of Nepal (Sebon) who was closely involved with the study.

Study of Nepal’s commodities market had been mandated by the High Level Financial Coordination Committee to help Sebon draft a regulation to bring commodities trading under its regulatory jurisdiction. Nepal’s GDP is at Rs 1,558 billion, according to the Central Bureau of Statistics.

The average daily transaction undertaken by commodities exchanges is as high as Rs 60-70 million, according to the study. Nepse’s average daily turnover in last fiscal year stands at Rs 28.85 million. 

The study also suggested to bring the commodities market under a regulatory rein as soon as possible because the amount of money involved in commodities trading in Nepal is big enough to bring about a huge financial disaster if left unsupervised. 

The number of traders and intermediaries involved in the commodities market is alarmingly high. 

The commodities market has six exchanges, 20,000 investors, 200 brokers and 400 sub-brokers, according to interim report submitted by a study team to conduct research on Nepal’s commodities market. 

Meanwhile, the capital market has only one stock exchange, 47 brokers and 300,000 investors and handles daily transactions worth Rs 10 million on 

average per day due to the recent surge. The active 

investors engaged in stock trading and frequent secondary transaction, however, is estimated to be as less as 15,000. 

The commodities exchanges have started business by only obtaining a licence from the Company Registrar’s Office under the Company Act, which being weak, cannot even penalise the companies in case something goes wrong. Drafting a law to bring them under some control as soon as possible has become an imperative, as they are handling a huge amount of public money.

Though Sebon has been commissioned to work as a regulator of the commodities market, there is strong doubt regarding the capital market regulator’s ability to effectively regulate the commodities market too with its limited capacity. 

The study also found that the ownership of commodities exchanges is concentrated to a single family and most of the promoters are found to be involved in futures trading. 

“These instances signal that commodities exchanges do not follow corporate governance and are full of irregularities,” pointed out the official.

Source: THT