Better futures trading reach

Trading of palm oil futures in Chicago and Kuala Lumpur will have better reach by the second half of 2010 if some restrictions are removed by regulators in Malaysia and the US.

Last month, Bursa Malaysia said it was selling a 25 per cent stake in its derivatives unit to CME Group Inc, to help globalise trading of Malaysian palm oil futures. CME will have the right to use settlement prices for its ringgit-denominated crude palm oil (CPO) futures contract while on its part, it will develop US dollar-denominated cash-settled palm oil futures contracts and related options to trade on CME Globex, the world's most widely distributed electronic trading platform.

"If Bursa Malaysia secures exemptions from the US Commodity Futures Trading Commission (CFTC), we'll be able to market Bursa Malaysia's products to American traders," said Malaysian Futures Brokers Association (MFBA) president Steven Lai Choon Lim."

Also, this will facilitate US commodity funds to come and trade in Malaysia," he told Business Times and Dow Jones Newswire in a teleconference at Kuala Lumpur yesterday.

Sales of futures products in the US are regulated by the Commodity Exchange Act and administered by the CFTC. The 30.10 rules limit sales activities by those who are not members of the US exchanges, but an exemption is granted if the exchange outside the US demonstrates that its regulatory system provides equal or 'comparable' customer safeguards to those in the US. Bursa Malaysia recently applied for the CFTC exemptions.

"Some of our members have secured approval from the Securities Commission to handle orders from overseas traders and to key in trades in overseas futures markets," Lai said.

For smoother CME Group-Bursa Malaysia collaboration, Bank Negara can liberalise rulings to facilitate resident brokers' remittance of clients' margin deposits to offshore brokers or exchanges for trading in overseas markets.

Lai does not see Bursa Malaysia's tie-up with CME Group ending like the now-defunct Joint Asian Derivatives Exchange (JADE), which was dissolved in November 2007. JADE was equally owned then by Singapore Exchange Ltd (SGX) and the Chicago Board of Trade.

"No, this collaboration is different because the trades will be matched on CME Globex in Chicago," he said. "Also, CME Group has more to gain from an established palm oil futures market in Kuala Lumpur."

The Bursa Malaysia-CME Group tie-up also means that Malaysian futures brokers will have to work harder to compete internationally. "The need to grow our business has not changed, but the trading environment will. A number of exchanges have already listed palm-related futures. We'll leverage on opportunities that will reinforce our strength," Lai said.

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