CME Globex to boost liquidity in Malaysia's Futures

This article is written by Lim Shie-Lynn and published in the Wall Street Journal today.

KUALA LUMPUR – (Dow Jones) – Effective Monday, Malaysia's stock exchange operator Bursa Malaysia Bhd will move its derivatives contracts, comprising commodity, financial and equity futures to CME Group Inc's (CME) Globex platform, reflecting the country's changing broking landscape.

With a wider pool of CME brokers able to use Bursa Malaysia's products, the move promises increased liquidity for Malaysia's ringgit-denominated crude palm oil futures, the most active of its contracts that acts as a global benchmark for the pricing of palm oil.

The move will also provide Bursa Malaysia's members access to CME's global products, although it is unclear, at this stage, how much interest it will generate.

The switch comes a year after the two exchanges announced a partnership with CME, the world's largest futures market, buying a 25% stake in Bursa Malaysia Derivatives (BMD), a unit of Bursa Malaysia. BMD currently has nine products traded on its existing platform, including futures on the FTSE Bursa Malaysia KL Composite Index, three-month Kuala Lumpur interbank offered rate futures and FCPO.

The crude palm oil futures on BMD will be the primary beneficiary of the switch as the Globex platform will give it a wider reach, similar to that enjoyed by the rival soyoil futures contract in Chicago.

BMD chief executive Chong Kim Seng said the "palm oil contract will have greater visibility and (the switch) gives BMD an opportunity to expand its product base in the future."

Chong said, in a briefing earlier this week, that Bursa Malaysia expects to double its daily trading volume to 12 million contracts by 2013, from about six million now.

An executive at the stock exchange operator said he expects the transfer to double the trading volume in crude palm oil futures in two years. Trading of the contract grew 33% to four million contracts in 2009, data from Bursa Malaysia showed. "With access to Globex, Bursa Malaysia is considering introducing new products such as ringgit -denominated soybean and soyoil contracts," the executive said.

Brokers and analysts said the changes would enhance market regulation and transparency as well as better price discovery.

"As Bursa already has liquidity in crude palm oil futures, we can probably see 10%-15% growth in trading volume in the next six months," said Michael Lee, executive director at Kuala Lumpur-based brokerage Philip Futures Sdn. Bhd. "Trading is likely to get rather interesting, albeit hectic with the Globex transfer," he added.

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