KUALA LUMPUR: Bursa Malaysia Bhd expects the volume of derivatives traded to double in three years after the derivatives and futures products migrate onto the Chicago Mercantile Exchange (CME) Globex system this month.
Bursa Malaysia Derivatives CEO Chong Kim Seng says the exchange has big hopes for its main two products – the CPO futures and KLCI futures indices – and is working on developing newer products after the migration of trading which will see those products jointly done in Malaysia and in 85 other countries.
Chong Kim Seng“It helps us to go into global distribution. It means our product will be put alongside the other contracts such as soybean oil and wheat and all the products on Globex,” he told StarBiz.
CME has a 25% stake in Bursa Malaysia Derivatives and has licensed the benchmark crude palm oil futures (FCPO) to CME for the exchange to develop a cash-settled dollar derivative of FCPO.
FCPO is a physical delivery futures.
“This will help us get people interested in palm oil who are seated at the other part of the world,” he said.
Chong said the contract would internationalise the visibility of Malaysia and the Globex trading system would open new avenues for trade because of its electronic platform and online trading.
“Potentially, we can bring in a lot more people who are interested,” he said.
“Right now the system is broker oriented, where orders are given to the broker and they execute the order. The distribution is not wide and now (Globex) will bring the world to us by having electronic distribution.”
One such experience where a foreign bourse saw a boom in trading activity was the Sao Paulo Stock Exchange (Bovespa) which formalised ties with the CME.
Boverspa merged its Brazilian Mercantile & futures Exchange with the CME and after its contracts migrated onto the Globex system, there was an eight-fold increase in order in just nine months to December 2009.
“We always think on how to double our products. We are looking at doubling the results in three years,” he said.
“Using the Brazilian Bovespa experience, they linked up with CME and over nine months, they have made a quantum leap. That is known as the North-South trade and we hope to create the East-West trade.”
Chong said the contracts both on Bursa Malaysia and CME would trade at the same time.
Financially, there will be a benefit for Bursa Malaysia as it will gain a licensing fee from the CME and the new crude palm oil derivative contract CME will launch - CUPO - should also enlarge the customer base for Bursa Malaysia.
Even though the derivative contract would be launched, he said, the fundamental price discovery would be in Malaysia on the benchmark FCPO contract.
Chong thinks having crude palm oil derivatives trade alongside the soybean oil futures contract will be a plus. “There is correlation between both edible oils and relative value trading is expected to increase a lot,” he said.
He said the crude palm oil futures would remain the most important contract for Bursa Malaysia as it’s the most liquid. But Chong feels there is also great potential for the FTSE Bursa Malaysia KLCI Futures (FKLI).
Palm oil did 4 million contracts last year and 2 million on the KLCI futures (FKLI).
“We have a good chance to bring eyeballs into our stock index,” said Chong.
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