Malaysia is looking to grow its derivatives market and become more integrated in the global financial system. The derivatives market in Malaysia is centered around Bursa Malaysia Derivatives, which is a subsidiary of the Bursa Malaysia stock exchange. Activity and foreign participation in the Malaysian derivatives market has been increasing in recent years, supported by initiatives like partnerships with international exchanges and the introduction of new derivatives products. Bursa Malaysia Derivatives is working to further develop the market through initiatives aimed at attracting more investors and market participants.
2. Some background information on Malaysia can help to
set the stage:
Characteristic Description
Southeast Asia. Geographically, the nation is split between East and West
Market Location Malaysia. Bursa Malaysia is located in Kuala Lumpur on the Malay Peninsula
north of Singapore and south of Thailand.
Emerging. Member of ASEAN (Association of Southeast Asian Nations)
countries along with 9 other Asian nations:
MSCI Country Classification Brunei, Cambodia, Indonesia, Laos, Myanmar, the
Philippines, Singapore, Thailand, and Vietnam.
July 2012 est. = 29.1 million. 50% ethnic Malay, 25% Chinese descent, 7%
Population Indian descent, and 18% foreign workers. Many workers are fluent in English
and other local languages.
Ringgit, usually referred by MYR. Other abbreviation is RM. As of April 10, 1
Currency MYR=.32 USD or .25 EUR
Bursa Malaysia. Bursa Malaysia Derivatives (BMD) is a subsidiary of Bursa
Exchange(s) Malaysia . This is the only equity/derivative exchange in Malaysia. Chicago
Mercantile Exchange (CME) owns a 25% stake.
Securities Commission Malaysia (SC). SC oversees all capital markets
Regulatory authority. Published “Capital Market Masterplan 2”.
Bank Negara Malaysia. Produces statistics on economic activity and market
Central Bank growth trends.
Primary Equity Index FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) 2
3. The derivatives market is expected to grow larger as
overall economics of the country improve
Future
Market Factor 2010 2011
Estimate
Expected to reach
GDP (PPP)1 $424.8 $447.0
$1,500.0 by 2020
~ 8-11% per year
GDP (growth rate) 7.2% 5.2%
between 2012-2020
$171 billion $213 billion $1.4 trillion (RM 4.2
Derivatives Notional Value
(RM 512 (RM 652 trillion) by 2020
Traded2
billion) billion
$12 million $16.7 million
$49 million (RM
Trading Revenue (RM 37.6 (RM 51.2
150.0 million) in 2012
million) million)
17 million 18 million 20-25 million metric
Palm Oil Exports3
metric tons metric tons tons in 2012
3
4. Meanwhile equity investors remain interested in an
emerging market like Malaysia for performance
Sri Lanka 147.4%
Indonesia 127.2%
Thailand 109.5%
Colombia 105.3%
Malaysia 78.3%
Chile 76.4%
Korea 70.3%
Peru 64.8%
Philippines 62.3%
South Africa 56.5%
Sweden 54.6%
Singapore
Taiwan
50.6%
50.3% Index returns
India 48.3%
Hong Kong
China
48.1%
42.3%
9/30/2008 to
Australia
New Zealand
34.2%
33.6% 12/31/2011
Mexico 32.3%
Brazil 31.0%
Argentina 29.6%
Russia 26.0% Developed Markets
Switzerland 23.6%
Denmark 23.5% Emerging Markets
Turkey 20.8%
Canada 19.1%
Norway 17.7%
US 11.7%
Germany 9.0%
United Kingdom 9.0%
Israel 7.6%
Japan 4.9%
Netherlands 4.1%
Pakistan 2.5% Source: TABB Group
5. There have been major milestones that have made it
easier for international (US) investors to access Malaysia
Global Traders Hubs Clearing Broker
Asia Based CME iLink Hub
CME Globex
(Chicago)
Malaysian
Broker
US Based
Matching Engine
UK Based
Source: TABB Group 5
6. Since the CME partnership, BMD activity has been
increasing; growth should continue in 2012/2013
BMD Futures Total Contracts versus Open Interest
14,000
12,400
12,000 +47%
10,400
Sept’2010: All Products
10,000
Migrated onto CME Globex
Thousands
8,463
8,000 +37%
6,203 6,120 6,138 6,155
6,000
4,161
4,000
2,460
2,000
85 159 125 156 123 132 152 190 248
-
2005 2006 2007 2008 2009 2010 2011 2012e 2013e
Number of Contracts Open Interest
Source: TABB Group, BMD 6
7. Again, one of the most noticeable changes has been
the increased activity by “foreign institutions”
% Turnover by Market Participant Crude Palm Oil (FCPO)
2% 1% 1%
14% 17% 15% 13%
25% 22%
25% Foreign Retail
28% 27%
38%
24% Domestic Institutions
34%
28% Domestic Retail
19% 24%
16%
20% Foreign Institutions
19%
Locals
33% 36% 34% 34%
24% 27%
2006 2007 2008 2009 2010 2011
Source: TABB Group, BMD 7
8. Trading participants (TPs) list of execution and clearing
brokers for BMD is fairly limited
# Company # Company
1 AmFutures 11 JPMorgan Securities (Malaysia)
2 CIMB Futures 12 Kenanga Deutsche Futures
3 ECM Libra Investment Bank 13 LT International Futures (M)
4 Fedrums 14 Okachi (M)
5 HDM Futures 15 Oriental Pacific Futures
6 Hong Leong Investment Bank 16 OSK Investment Bank
7 IF Derivatives 17 Phillip Futures
8 Innosabah Options Futures 18 RHB Investment Bank
9 Inter-Pacific Securities 19 Sunny Futures
10 JF Apex Securities 20 TA Futures 8
9. Other reasons to keep Malaysia on the radar screen
include major initiatives to grow investor participation
Topic Initiative
Options on Crude Palm Oil Futures (OCPO), Rubber Futures,
New Derivatives Product Launches USD Palm Olein Futures, Single Stock Options
Re-Introduction of Past Products Options on KLCI Index Futures (OKLI), 5-year Malaysian
Government Bond Futures
Revitalization of Existing Products 3-month short-term interest rate futures (FKB3)
Single Stock Futures, Miniature contract types, Exchange
Derivatives Innovation
Traded Funds (ETFs)
High-frequency traders already exist in the derivatives market
but this move should make it easier for hedging and arbitrage
opportunities. No official timetable set, but HFT expected in
Growth of HFT / automated market- equity market by end of 2012.
making
According to interviews, HFT accounts for about 6% of
derivatives trades on the Bursa’s derivatives platform.
Conversion of OTC Swap Positions Facility in development to bridge the OTC market with the
into Futures Contracts exchange
10. Q&A with Azila Abdul Aziz
Executive Director of Dealing
Kenanga Deutsche Futures
TABB Group Webinar