Palm oil futures trade on Bursa Suq Al-Sila may quadruple

Stock exchange regulator Bursa Malaysia Bhd expects trading volume on its commodity Murabahah exchange to possibly quadruple this year, as it admits more Islamic banks from the Middle East as members.

The exchange, known as Bursa Suq Al-Sila, is a global trading platform that enables banks to buy and sell commodities to facilitate Islamic finance. It commenced business last August and is open only to members.

Crude palm oil (CPO) now trades on the exchange, but this will expand to include non-precious metals later this year, Bursa's global head of Islamic markets Raja Teh Maimunah Raja Abdul Aziz said.

"I hope to triple, quadruple (the volume of trades) ... that's the whole idea once we get the Gulf Cooperation Council (GCC) markets by this year," she told reporters after her presentation on the use of CPO in Islamic finance at the Palm Oil Outlook Conference 2010 in Kuala Lumpur yesterday.

The volume of trades on Bursa Suq Al-Sila in January 2010 alone has already exceeded that of the entire 2009, she said, adding that the volume further improved in February. Raja Teh, however, declined to give specific numbers, except to say that the exchange is benefitting from a rebound in the financial markets.

Cross-border trades are already taking place and the exchange's next move is to admit Islamic banks in the GCC as members, she said. "We have signed a memorandum with Bahrain, specifically with a view of bringing this now to the GCC," Raja Teh said.

Some 90 per cent of local banks are trading through the exchange. Suppliers of the CPO are currently from Malaysia, but Indonesian palm oil producers are expected to come on board sometime this year too, she said.

To provide financing using the exchange, an Islamic bank first has to buy CPO from the spot market and then sell it to the borrower. The borrower then sells the CPO to a third party in the spot market for cash, using the bank as its agent, thus securing the financing. All transactions are based on the syariah principles of Murabahah, Tawarruq and Musawwammah.

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