Bursa plans fee rebates to boost derivatives mart

Bursa Malaysia is looking to offer fee rebates to futures brokers in an effort to generate more liquidity in the local derivatives market.

"We'll submit a market-makers programme to the Securities Commission (SC) for approval," said Bursa derivatives acting general manager K. Sree Kumar.

"One of the incentives include a fee rebate to liquidity providers," he told reporters after presenting a paper on "Internationalisation of Malaysian Palm Oil: Challenges and Opportunities" at the PIPOC 2009 in Kuala Lumpur yesterday.

Earlier in the year, Bursa said it will step up efforts on market-making, having seen thin trade of the US dollar-denominated crude palm oil futures, known as FUPO, since its launch in September 2008.

Market-makers refer to futures brokerages and banks that accept risks by quoting both buy and sell prices in futures contracts, hoping to make a profit on the turn or the bid/offer spread.
There are now about 20 licensed futures brokerages facilitating palm oil trading on the Bursa Malaysia Derivatives market.

"We'll also hold discussions with traders, including palm oil refiners, to gain direct feedback on ways to enhance participation in the derivatives market," Sree Kumar said, adding that there have been requests for monthly publication of a more meaningful classification of trades on the derivatives market. "We'll discuss this with our surveillance team," he added.

Bursa had announced two months ago that it will sell 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.

Sales of futures products in the US are regulated by the Commodity Exchange Act and administered by the Commodity Futures Trading Commission (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.

Sree Kumar confirmed Bursa is applying for the CFTC exemptions. "Once we secure exemptions from the CFTC, we will be able to market our products to US traders. Also, US commodity funds can come in and trade here," he said.

CME is scheduled to develop a US dollar denominated palm oil futures contract by the first half of 2010. In preparation, Bursa will jointly work out a business plan with CME to market that instrument. "We'll go on a roadshow with local futures brokers to promote this new instrument and existing products to traders. We'll also set up a CME Globex hub in Kuala Lumpur then," he added.

Sree Kumar said once these products are listed on CME Globex, there is a possibility that trading of Malaysian CPO futures could be extended to 22 hours. "Trading hours will most probably be extended from the current 10.30am to 6.00pm. Futures brokers will have to make this commercial decision and of course, it is also subject to the SC's approval," he added.

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