CME to take stake in Bursa derivatives ops

This following article in green is written by my colleague Adeline Paul Raj. About 18 months ago, on 1st March 2008, I wrote about the possibility of this tie-up. I'll paste that article below in blue ;-)

CME Group Inc, the world's largest derivatives exchange, will take a minority stake in Bursa Malaysia Bhd's derivatives business, officials said.

Discussions are ongoing and should be finalised in a matter of weeks, Bursa's chief executive officer (CEO) Datuk Yusli Mohamed Yusoff said. "It's a minority stake. We're still finalising the negotiations," he told reporters on the sidelines of the World Capital Markets Symposium in Kuala Lumpur yesterday.

In return, Bursa will also take a small stake in the Chicago-based CME, the latter's CEO Craig Donahue told Business Times on the sidelines of the same conference.

The two companies announced in a press statement yesterday that they were working on a collaboration involving trade matching services, product licensing and minor cross-equity investments. The deal needs regulatory approval, they said.

Yusli said the partnership is aimed at globalising the Malaysian crude palm oil (CPO) futures market. "Through this collaboration, we expect the resulting expertise and knowledge transfer to further facilitate our goal for a robust derivatives exchange," he said.

CME will use Bursa's ringgit-denominated crude palm oil futures contract (FCPO) settlement prices, which will enable CME to develop a US dollar-denominated cash-settled CPO futures contract and its related options for listing on one of CME's US registered exchanges.

The product is expected to be traded on CME's electronic trading platform, CME Globex. This means that CME's customers from other markets would be able to access Bursa's derivatives markets and products on CME Globex, which is the most widely distributed electronic trading platform in the world.

"This proposed partnership will allow us to continue to expand our transaction processing business opportunities, increase our presence in Asia as well as help our Malaysian partners grow their business," Donahue said in the statement.

Bursa's shares, which were suspended from trading for an hour in the morning pending the announcement, ended the day 2 sen lower at RM8.29.

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Futures tie-up with Chicago?
MALAYSIA'S popular crude palm oil futures (FCPO) and the soon-to-be-launched US dollar palm oil futures (FUPO) may also be traded on the Chicago Mercantile Exchange in the medium term, a source said.

"Bursa is launching the direct market access very, very soon. Following that, FUPO's accessibility to foreign traders will be higher when it is launched in less than six months," the source said.

If Bursa Malaysia's palm oil futures are traded in Chicago, it will boost palm oil's popularity as a reliable and flexible hedging tool.

Malaysia is already the world's biggest palm oil exporter. Kuala Lumpur is also the world's biggest futures market for the commodity.

Earlier this week, the Chicago Mercantile Exchange co-hosted an event at the Palm & Lauric Oils Conference 2008 held in Kuala Lumpur. The majority of the participants were oil palm growers, oleochemical producers, food manufacturers, vegetable oil traders, biodiesel producers, commodity fund managers, financiers, futures brokers and dealers.

CME Group president Phupinder S. Gill, in his welcome speech to more than 1,900 delegates said, "We look forward to collaborating with Bursa Malaysia to generate trading opportunities". Also present was Bursa Malaysia chief operating officer Omar Merican.

When approached, both Phupinder and Omar declined to elaborate on the proposed collaboration.

CME Group, which clocks in daily trading volume of around nine million contracts, consists of the Chicago Mercantile Exchange and Chicago Board of Trade (CBOT). It is the world's largest derivatives exchange for grains, livestock, oilseeds, dairy and timber.

Another source said that the tie-up will not lead to another JADE, a new exchange that was meant to be equally-owned by Singapore Exchange
Limited (SGX) and the CBOT. "It is more of having some of the derivatives traded on CME Globex electronic trading platform. It could be FCPO, FUPO and FKLI."

The partnership for the Joint Asian Derivatives Exchange (JADE) was dissolved in November 2007 when SGX paid S$1.14 million for the remaining stake in JADE, following CME's acquisition of the CBOT. JADE's contracts - rubber and palm oil futures - were transferred to the SGX derivatives platform.

When JADE was launched in September 2006, it used the Chicago exchange's electronic platform and clearing was done by the SGX. It listed its first product, a rubber futures, in September 2006. Later in June 2007, it launched the US dollar denominated crude palm oilfutures. The physically-settled contract was created to compete with the global benchmark FCPO contract listed on Bursa Malaysia.

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