Tie-up drama takes the shine off palm meet

WHEN news reports of Indonesia Commodity and Derivatives Exchange (ICDX) possibly holding hands with CME Group were published, there were many red faces at the Palm and Lauric Oils Outlook Conference (POC) 2011.

Every year, the highlight of the POC series is on the palm oil price forecast. 

This time around, however, Bursa Malaysia Bhd got a rude shock when reports by Thomson Reuters, Dow Jones and the New Straits Times quoted ICDX managing director Megain Widjaja as saying he is excited over the prospects of cross border trades at his exchange, having forged a tie-up with CME Group.

In a bid to stem a snowball of inaccurate information from becoming an avalanche, CME Group managing director of agricultural commodities Tim Andriesen called an emergency press conference.

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

Andriesen reaffirmed that "CME Group has deep respect for its existing partnership with Bursa Malaysia".

"Bursa Malaysia is our key and strategic partner in this region. It would be bad faith on our part if we were to offer any products where Bursa Malaysia is not involved," he added.

This is because in 2009, CME Group and Bursa Malaysia swapped shares to promote the trading of palm oil contracts.

This was followed up with CME Group launching its dollar-denominated contracts. Also, all existing Bursa Malaysia Derivatives products like FCPO, FUPO and FKLI were made available on the CME Globex.

It is understandable that many Bursa officials were upset with the slew of inaccurate news causing confusion among futures brokers in Malaysia. This is because Bursa had, for many years, been working hard to forge strategic partnerships with high-profiled exchanges in Chicago and Dalian. These partnerships are one of the many ways for Kuala Lumpur to retain its clout as the global benchmark in palm oil trade.

What this means is although palm oil is traded in other exchanges like Dalian, Jakarta, Mumbai and Chicago, international brokers and traders quote palm oil prices from Kuala Lumpur.

"Palm oil prices have been quoted out from Kuala Lumpur for the last 30 years. It is actually quite an achievement because tin and rubber, which used to be quoted from Kuala Lumpur also have long shifted to London and Tokyo," a market observer said.

The usual trend is for commodities to be quoted out from exchanges that have high clusters of end-users or from financial hubs like London, Singapore, Hong Kong and New York.

As it is, the Dalian Commodity Exchange (DCE) is now clearing 10 times more palm oil trades than Bursa Malaysia. So, it is only natural for Kuala Lumpur to collaborate with CME Group and DCE to stay on top of the game.

"Therefore, when there are rumours or news questioning the exclusivity of partnership with CME Group within the same region, it strikes at the heart of Bursa Malaysia," the market observer added.

Despite the controversy and confusion, Bursa had a reason to smile because POC 2011 recorded its best ever attendance. More than 2,000 delegates gathered in Kuala Lumpur this week and they paid conference fees averaging RM2,500 each, 20 per cent higher than last year.

When met at the gala dinner, Bursa Malaysia chief executive officer Datuk Yusli Mohamed said he was pleased with the successful delegate turnout. "Yes, this is my last do before my term ends. The POC series have attracted quite a big crowd this year," he said.

Last month, Bursa Malaysia named Datuk Tajuddin Atan, the current managing director of RHB Capital, as its new CEO effective April 1 2011. He takes over from Yusli, who has helmed the position for seven years.

At the gala dinner, Kenanga Deutsche Futures Sdn Bhd, a subsidiary of K&N Kenanga Holdings Bhd, emerged the best overall performer for the eighth straight year in attracting the biggest trades into Bursa Malaysia Derivatives Exchange. It also won the Top Equity Futures Broker Award 2010.

"We will continue to put our clients' needs at the forefront and implement innovative and cost-effective solutions," said Kenanga Deutsche Futures executive director Azila Aziz.

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