THE GLOBAL DERIVATIVES MAGAZINE ROUNDTABLE

Malaysia derivatives
Global access through a global partner
Held on September 18, 2012 in Singapore

In association with
 2 OCTOBER/NOVEMBER 2012

THE FOW ASIA ROUNDTABLES: BURSA MALAYSIA DERIVATIVES

Sponsored by:
VIP invite
Date: 18 September
Time: 14:45 (15:00 start)

an Bursa Malaysia
Derivatives: Derivatives Location: Marina Mandarin,
Singapore

targets
ccess international
through growth
a Global Partner
s mostAs established
exciting markets in The
growth markets thepanellists
West falter, investors are increasingly looking overseas for
will be:
Bursa Malaysia Derivatives (BMD)
trading opportunities. After
and 2011 following a deal with
a decade
Chong of CEO,
Kim Seng, growth
Bursa and a landmark
Malaysia Derivatives deal with the CME Group

in 2009,
e exchange Bursa
to Globex Malaysia Derivatives is targeting diversificationCommission
traders. Goh Ching Yin, ED Strategy & Devt, Securities and increasing its growing
Shamsuddin bin Mohd Mahayidin, Director of Foreign Exchange
international participation.
its markets to foreign investors and
At the Asia Roundtables, held on September 18, William Mitting
Administration Department, Bank Negara Malaysia
ith newmet with
contract a group
launches, moreof leading market
Natarajan participants
Narayanasamy, in theDirector,
Executive Malaysian market to discuss the
present themselves for international
development of the exchange and the potential for growth as it seeks CFTC approval for DMA.
LT International Futures (M) Sdn Bhd
Azila Abdul Aziz, Executive Director Dealing,
Kenanga Deutsche Futures Sdn Bhd
Speakers
MD will host an exclusive
Derivatives: Global Access through Steven Lai Choon Lim, Director, OSK Investment Bank Bhd
ts only, this is your opportunity Paul Davies, Managing Director, Goldman Sachs
rts talk about the opportunities in
pitalise on them. David Strachan, Managing Director, J.P. Morgan
Julien Le Noble, Managing Director, CME Asia
amine the challenges William Mitting, Editor, FOW
alaysia for international
can capitalise on the
The roundtable will be available for download from
Chairman: Moderator: Azila Abdul Aziz, Teyu Che Chern,
http://www.fow.com/Stub/SponsoredRoundtable.html Steven Lai Choon
Chong Kim Seng, William Mitting, executive director chief executive, Lim, director, OSK
chief executive, editor and publisher, dealing, Kenanga Phillip Futures Investment Bank
, contact Helen
Bursa MalaysiaSeidenberg
FOWat hseidenberg@fow.com
Deutsche Futuresor + 44 207 779 8351
Derivatives
vents.com

Julien LeNoble, Shamsuddin bin Natarajan David Strachan,

managing director, Mohd Mahayidin, Narayanasamy, managing director,
CME Asia director of foreign executive director, JPMorgan
exchange Bank LT International
Negara Malaysia

William Mitting, FOW: I think it goes without saying
that Malaysia is one of the most exciting derivative
markets globally right now. At a time when volumes
are in decline on a number of Western exchanges,
its more important than ever that international
investors can grow in new markets. Bursa Malaysia
Derivatives has been growing for some time now,
but it is over the past 12 to 18 months that its
really begun to attract international attention on a
greater scale than before. To begin, Mr Chong, can
you give us a little background to the growth of the
Malaysian markets and the economic growth within
Malaysia itself?
Chong Kim Seng, Bursa Malaysia Derivatives: In
2010, the Malaysian Government launched a large
OCTOBER/NOVEMBER 2012
THE FOW ASIA ROUNDTABLES: BURSA MALAYSIA DERIVATIVES
programme called the Economic Transformation
Programme, or ETP, which targets investment
in high growth areas in order to improve the
infrastructure and to boost competitiveness
and efficiency. Also within the programme
are measures to divest government stakes in
companies to private investors as part of the
overall goal of growing Malaysia from its developing
country status to a high income economy. It is
now up to various agencies and industry sectors
to execute this plan. So, overall Malaysia is
undergoing a very, very exciting growth phase,
expected between now and 2020.
The development of the capital market in the
financial services sector is also contained within
the ETP programme and the development of the
derivatives marketplace is a key growth area within
capital markets.
In 2009 Bursa Malaysia formed Bursa Malaysia
Derivatives, a 75:25 joint venture with the CME
Group. In 2010, we concentrated on migrating
all our products onto the CMEs Globex platform,
a process that we completed successfully by
September 2010. In 2011, we worked on
developing the derivatives clearing side of the
business, launching a new clearing engine in
February 2012.
2012 is our first year of our market
development, where many new services and new
products are being introduced and launched,
new services include negotiated large trades
and exchange futures for related positions; new
products include the re-launching of interest rate
products, options on the stock index, and options
on the palm oil futures contract. All of these
initiatives are laying down the foundation for future
growth, and we believe that theres going to be
great traction.
Between 2010 and 2011 the exchange grew by
39%, out of which palm oil futures grew by 46%,
and the futures on the Kuala Lumpur Composite
Index grew by 26%, so we are encouraged by this.
Mitting: There has been a lot more international
interest but I know one hesitation a lot of investors
have going into new markets is uncertainty over the
regulatory framework. Could you just provide a little
background to that: how its changed and how open
the market is?
Chong: Our regulator is the Securities Commission,
which issued a Capital Masterplan II in 2011. It
builds on the first plan that ended in 2010. The
update to the Capital Masterplan, which runs up
till 2020, outlines various strategies to bring about
growth and increased governance in the capital
markets.
It is interesting to note that the Plan talks
specifically about facilitating the efficiency of price
3
discovery and hedging across markets, and even
talks about moving it from the underlying physical
market to the derivatives market because of cost
efficiencies and flexibilities for hedging. So having
a well-regulated derivatives market becomes an
essential part of the overall picture.
In the year 2000, the notional value of
derivatives in Malaysia stood at MYR 84 billion. By
2010 that value went up to MYR 512 billion, which
is a 500% increase. Its projected that by 2020
that value will be MYR4.1 trillion, another 800% or
so over 2010. That is the projected growth in the
derivatives markets.
We are all very encouraged by the support that Chong: rapid growth at BMD
we have received from Securities Commission and
[the central bank] Bank Negara as we go about
developing this market. So that is the framework
we are operating our business under, and Im glad
that that framework is very consistent with how we
are looking to move forward.
Mitting: Shamsuddin, from the central banks
perspective, are there any restrictions on the
mobility of cross-border fund flows arising from
foreign investments in the country?
Shamsuddin bin Mohd Mahayidin, Bank Negara
Malaysia: Our policy, our role and our aim is
to create an environment that is conducive for
business, and also to enhance the competitiveness
of the economy, while promoting monetary and
financial stability. We are creating a welcoming
environment for businesses. We are creating an
environment where people can compete.
As far as non-resident foreign investment is
concerned, theres free mobility of capital moving
into Malaysia and out of Malaysia, there are no
restrictions whatsoever when it comes to money
coming in for investment and money going out
arising from investment. Foreign investors can
recover profits and recover dividends. Investors are
free to pick up the money: there are no restrictions.
Mitting: Malaysia recently has been undertaking the Theres free
liberalisation of foreign exchange administration. mobility of
However, it does seem that there are still
perceptions in the market that there were capital capital moving
controls. What are the common misconceptions
that you come up against and whats your answer
into Malaysia
to them? and out of
Mahayidin: Controls were imposed way back, more Malaysia,
than ten years ago, as part of a plan during the
financial crisis and were removed soon afterwards.
there are no
However, there are still some misconceptions. restrictions
The misconception that we normally hear is that
there are restrictions for people who want to whatsoever
invest in Malaysia, that there are levies imposed Shamsuddin bin Mohd
on investment initiatives. This is not true at all. The Mahayidin
4 OCTOBER/NOVEMBER 2012
THE FOW ASIA ROUNDTABLES: BURSA MALAYSIA DERIVATIVES
perception is that there are still rules pertaining to
mobility of capital, and Id like to make it very clear
that we do not have such rules anymore.
Mitting: That must be music to the ears of your
clients, David. But are there other challenges to
trading in Malaysia? Where do you see the key
stumbling blocks, and how do you help your clients
overcome them?
David Strachan, JPMorgan: Yes, that certainly
is music to our ears, and has been for some
time. With respect to the other challenges that
Aziz: how to access BMD international investors face, I would say that the
sophisticated investors have already found ways to
negotiate any challenges.
There has also been to a certain degree
an apprehension around holding deposits or
having assets in the Malaysian ringgit due to the
volatility of the currency, but if you look back at
the Malaysian ringgit over the course of the last
24 to 30 months, its moved within a very tight
band between 3 and 3.2 against the US dollar, so
in terms of global volatility this is actually not a
volatile currency.
So we dont feel there are any major challenges
for sophisticated international investors finding a
way to access this exchange, and weve seen that
most notably by the number of new clients that
weve brought to Malaysia over the course of the
last two and a half years.
Mitting: So there are no major challenges, but,
Azila, there are requirements that investors need
to be aware of. Can you just outline those?
Azila Abdul Aziz, Kenanga Deutsche Futures: I would
say that from the micro perspective brokers remain
the key source of access to the markets. There is
a little bit of confusion sometimes when we talk to
new customers, especially on the global side about
access.
We dont With contracts being made available on the
feel there are CME Globex platform, clients ask if they can access
it via their existing relationships on the current
any major platform that they have in America or in Europe.
This is not the case, because prior to having the
challenges for trading access into BMD listed products hosted on
sophisticated CME Globex, the institutional global customermust
establish a relationship with a clearing broker
international onshore in order to comply with the Bursa Malaysia
Derivatives business rules.
investors There are about 20 member firms on BMD and
finding a way getting connected is a straightforward process,
just pick a broker of your choice and establish that
to access this relationship. If the institutional global customer is
using a carrying broker, that carrying broker must
exchange have a direct relationship with a BMD clearing
David Strachan member firm.
Secondly, the trading desk of the global client
must ensure that the system and the front-end
trading application that they deploy is CME certified.
Finally, the trading desk of the global client must
establish trading platform connectivity and ensure
that their trading infrastructure is able to interface
with CME Globex and communicate via FIX/FAST
protocol. With those three steps you can get
connected.
Julien LeNoble, CME Group Asia: Going back to the
perception of potential restrictions surrounding
access to the Malaysian market, does the panel
have a sense of whether this perception is a barrier
to participation for some? Is there really some
liquidity that is not accessing simply because they
have a perception of barriers that dont exist and
therefore do not come into the market?
Natarajan Narayanasamy, LT International Futures:
I think capital controls were a barrier, but we
dismantled it. We got to the point and said, hey,
this is never going to work, and I think we have
made it very clear to the whole world that these
barriers are not in existence anymore and when
the exchange tied up with CME that made the point
event more.
Strachan: Thats absolutely spot-on. We used to
have clients coming to us and saying we want to
trade on Bursa Malaysia, and then wed outline the
ringgit denomination, wed outline the convertibility,
wed outline the processes that we had in place.
Wed outline the issues which used to exist around
things like give-up agreements, which were quite
complex at some stage. And then theyd say, well,
thats a bit too complicated, well find something
else to trade.
That has changed. I dont believe were missing
out on a large pool of liquidity. I think that 80% of
the clients that want to trade Bursa Malaysia are
already trading it; the other 20% are probably going
to be in the next 12 months.
Mitting: Julien, while were talking about the Globex
tie-up, the 25% investment is higher than you
typically invest in your global partners; what was the
rationale behind the investment in Bursa Malaysia?
How do you see that deal developing and how do you
work with the exchange?
Le Noble: Partnerships are really an integral part
of our international growth strategy. Its in our DNA
and goes back 24 years ago when we started our
partnership with the Osaka Stock Exchange. Since
then, we have established a number of partnerships
with or without a shareholding component with
the latest being our recapitalisation of the Dubai
Mercantile Exchange.
OCTOBER/NOVEMBER 2012
THE FOW ASIA ROUNDTABLES: BURSA MALAYSIA DERIVATIVES
The rationale is really linked to our drive to
provide access to benchmark products to our
clients, and this is the underlying factor that we
look at when we consider partnerships.
Bursa Malaysia had the palm oil benchmark
before we got involved and it obviously remains
a global benchmark. It is a large producer of the
commodity with 85% of global production coming
from Indonesia and Malaysia, and a platform where
refineries, producers, and the rest can come to
manage their risks.
The partnership is not just about Globex, our
electronic trading platform. The other attribute
is the fact that we have a 25% ownership stake,
and that is important because it creates a vested
interest for us to work very closely with Bursa
Malaysia Derivatives, not just making sure that
the Globex platform is operational and reliable, but
also in ensuring that we are closely cooperating
with regards to product development, research and
marketing and sales activity. So we are fully vested
partners, and thats an essential attribute to the
partnership.
Mitting: And in terms of the types of investors that
youre working with to access Malaysia Azila, can
you give us a brief demographic of your clients?
Aziz: I think you can break it down into four broad
categories. First of all, we see foreign banks,
hedge funds and CTAs, which account for 25%
and 50% in the two most active contracts crude
palm oil futures and index futures respectively.
Second of all, the speculators which includes many
local traders. The third category is the rising
participation from high frequency trading firms
running quantitative-base arbitrage strategies,
which have been adding liquidity to the market. And
fourth, the domestic corporate end users, such as
manufacturers and large plantation companies are
maintaining a stable level of hedging activity.
Strachan: I think that the strongest growth that
weve seen has been among the trade participants,
and thats to a large extent because theyve been
able to trade more because volume begets volume,
and as the market itself expands they find more
liquidity to get the size of the hedging done that
they want to do. That then feeds into greater
physical activity, which then of course requires the
exposure for the larger hedges.
The exchange has been very commercial in the
way that theyve viewed requests that weve made
on behalf of clients for hedge extensions, which has
seen additional growth there. I think if any sector
of the market has gone the other way its possibly
been the CTA market.
Everyone knows that palm oil is a non-correlated
contract, and CTAs by their very nature need to
5
have diversification in their portfolio. None of that
has changed, and palm oil is still a very popular
contract with CTAs. But CTAs have had a very
tough trading time over the course of the last two
years, and many of those losses seem to have been
concentrated in commodity contracts, so I think we
might have actually seen a little bit of risk off from
the CTAs.
Teyu Che Chern, Phillip Futures: We are seeing
more investment coming from North Asia. There
are more people arbitraging the Dalian versus the
Malaysia palm oil contract, and also looking at the
Narayanasamy: HFT an
soya bean versus Malaysia palm oil.
opportunity
One of the key benefits of trading on Globex is very
much the increase in international participation. As
long as traders are connected to CME, they can
straightaway connect with someone in Asia.
Chong: If you look at our performance over the few
years before we went on Globex, we stagnated
at about 6 million contracts for four years, and
then we have this 39% growth that came the
moment we went to Globex. We recognise that
global electronic distribution is a critical part of the
business, and we are glad that we have solved that
challenge through the Globex engine.
Mitting: Obviously the palm oil contract is the most
liquid on the exchange, but in terms of international
interest in other areas, what are you seeing David?
Strachan: I think one of the mistakes that
exchanges have made in the past in Asia is they try
to fix a contract which doesnt have any problems.
Weve seen that many times, and I dont know
whether this is just an Asian-specific or a global
problem, but when we look at the BMD palm oil
contract, we dont see anything fundamentally
wrong with it and the interest from our clients,
supports that view. There are
Are there issues which could be attended to?
Of course there are. Take the closing auction, for
more people
example, there are some issues around the security arbitraging the
of the warrants procedure during the deliveries, but
these are asides rather than fundamental issues Dalian versus
that need to be fixed. So our advice would be if its
not broken then dont try and fix it.
the Malaysia
With respect to other markets, weve had very palm oil
little interest in a ringgit-dollar FX contract, but
typically thats the case until the contract is actually contract, and
there, until an exchange has the courage to launch also looking at
the contract.
If you look at the Indian exchanges that have the soya bean
launched FX futures recently in Mumbai, there was
very little client demand for that, but the contract
versus Malaysia
itself has been very successful, so the fact that the palm oil
client demand isnt there doesnt necessarily make
any statement about its potential success. Teyu Che Chern
6 OCTOBER/NOVEMBER 2012
THE FOW ASIA ROUNDTABLES: BURSA MALAYSIA DERIVATIVES
Mitting: Which brings us on to the domestic
market. Steven, could provide a brief outline of your
overview of the key trends among local investors
and the key growth areas that you identify?
Steven Lai Choon Lim, Director, OSK Investment
Bank: Perhaps maybe I will share the market
demography of our marketplace. For the local
index futures, for the last three months, domestic
participant is around 40%. That tends to fluctuate
between 40% and 50% depending on the short-
term volatility that we experience. There are a lot
of short-term traders in the retail market. For the
Che Chern: international palm oil, the retail participation is about 20% of
migration the daily volume, total domestic participation is
around 58% including exchange locals, and that
tends to range from 55% to 60%.
So we feel retail participation in Malaysia is
quite healthy and it is growing. But of course
theres a lot more work to be done in terms of
education and growing investor sophistication in
tandem with the marketplace.
Mitting: There has been quite an intense educational
programme across Malaysia thats been conducted
by the exchange in coordination with local brokers.
Could you just outline how youve been road-showing
the exchange and what impact thats had?
Chong: From the exchanges point of view we
recognise that we need a strong domestic
market as well as the international market. On
the domestic side, education is a key part of our
growth strategy. As an exchange, together with
our broking members, we educate the market on
hedging, trading, risk management, how to use
futures, how to use options: all subjects that need
to be brought to the attention of the domestic
market participants, including going to the board
members of some of the institutional plantation
companies.
Che Chern: The exchange is taking the lead,
travelling to different parts of Malaysia, and
bringing brokers together and activating new
brokers. It promotes broking as a career as well
as the basics of trading futures. At least to 20 to
30 new Local Participants have been activated as a
result of this campaign. It takes a while to see the
result of all these programmes but the impact is
As far as HFT already being felt.
is concerned, Chong: I think as we go about doing all this, there
I think its is a group of very seasoned traders across the
world who are very willing to teach other traders.
something very This discussion is definitely welcomed in Malaysia.
new for BMD I think that when you go out there, you see there
is a huge demand for education and providing this
Natarajan Narayanasamy education could be a very successful business.
Mitting: We have talked quite a lot about the
international investment coming into Malaysia, but
one of the opportunities presented by the Globex
deal is greater ability for local traders to trade out
of Malaysia. What trends are you seeing; where
are locals trading and what growth do you see
internationally in that respect?
Che Chern: What we have seen is a migration to
international markets. Local traders who have
learnt to arbitrate futures on indexes want to
explore a bit more. So we see that they start
looking at other Asian markets, and one way to
start that is on the SiMSCI in Singapore and then
maybe the Hang Seng. After a while they look at
Dow Jones and the S&P, because thats where the
liquidity is. Then you also see commodity traders
will try other commodities like a gold contract or a
crude oil contract. So there is another opportunity
for Bursa Malaysia Derivatives: maybe it can
launch a gold contract locally.
Mitting: Moving on to high-frequency trading on
the Malaysian markets. Can you just give us a
quick overview of how much HFT there currently
is?
Narayanasamy: Our estimations suggest that HFT
accounts for approximately 4% to 5%, of overall
market volume so it is not that big at the moment.
And as far as HFT is concerned, I think its
something very new for BMD. We saw HFT come
into the market after the Globex deal and there are
various brokers offering that right now but at the
moment theyre not that robust in the market. We
dont see big volume there at the moment but it is
growing.
Of course theres the issue of the regulators
now coming down quite hard on some of these
HFTs and asking how it should be regulated. As far
as Malaysias concerned, I think at the moment,
BMD regulates it indirectly through the brokers.
So what we are seeing is still new, but what
we are trying to do is take it to the next step, like
options. And they just want to get a feel of the
market and find the liquidity.
But when these guys really come out in full
force then well probably see the underlying futures
and the options taking off. And this is where we
go looking at volumes of 100,000. So this is
something good for the market at the moment, but
this is not what we rely on.
Mitting: Presumably BMD is naturally quite an
attractive market to HFT, because of the arbitrage
opportunities in other markets. How has that been
developing?
Che Chern: We know there are people that are
OCTOBER/NOVEMBER 2012
THE FOW ASIA ROUNDTABLES: BURSA MALAYSIA DERIVATIVES
spreading between soya beans on Chinese and
Malaysian markets. That could be manual trading
though and the question is whether it is going to
cross into algo trading but there are structured
programmes and its probably already happening.
At the moment they have the API connectivity and
they are able to write an algo. But certainly based
on our understanding the demand is there, and
as more and more people look at Malaysia, this
portion of algo trading will certainly grow.
Narayanasamy: I think if we look at the whole
macro perspective of the industry, its all about
technology. Its a technology-driven business now
right from the US to Asia.
Technology was something that everybody
feared ten or 15 years ago. But now it has grown
to something that you fear being without, so
everybodys moving in a different direction now. I
think thats whats happening to our market and to
our industry globally.
Mitting: Whats the exchanges take on HFT, how do
you view it as a growth area?
Chong: I think our starting point is that the market
belongs to everybody. In a market there are many
buyers and sellers. Its not just a domestic market.
It is an international market. We see high-frequency
traders as part of the business and the market and
we welcome them. And since the Globex engine can
take care of them as well, we see them just like any
other trader, and we welcome their participation.
Mitting: And what is the local attitude to high
frequency trading - has the negativity in the West
clouded its perception?
Strachan: I think that we are involved in a
technology arms race, and if you look at the trends
that weve seen over the past years, typically the
emergence of new technology and new products in
Europe and the US have then emerged in Asia. On
the subject of high frequency trading, JP Morgan
has somewhat of a different perspective on this.
Were particularly concerned about high-
frequency trading because of the potential risk
management implications. Weve already seen
a couple of very high profile incidences where
high-frequency trading that has not been well risk
managed has had a seriously detrimental impact on
markets. And so were not focused on that market
because of the implications.
And something that I think maybe BMD should
be contemplating in terms of whether there will
be a lot of high-frequency trading on BMD, one
of the things that high-frequency traders love to
exploit is anomalies in a non-level playing field.
Now due to the fact that CMEs hub in Chicago has
7
got exchange-hosted pre-trade risk management
procedures in place, implemented, and live, they
have a level playing field, so its not so attractive
for HFT.
What the high-frequency traders want is an
exchange that will allow them naked access, so
effectively using a broker-sponsored API to divert
around the risk management procedures, which
might save them a couple of nanoseconds or
picoseconds, and so they get the advantage over
their competitors in this technological arms race.
So for that reason, Im not convinced that BMD
will see the same take-up of high-frequency trading,
Strachan: Technology arms
because it is, as it should be, a level playing field
race
giving fair access to all.
Mitting: I am sure that we could talk for another
90 minutes about the HFT debate but I want to
move on to look at the future growth of BMD.
Traditionally, obviously, the palm oil contract has
been dominant but you said that a goal of the
exchange is to diversify with initiatives such as the
launch of options. Where do you see the key growth
areas outside palm oil for the exchange?
Chong: Our view is that so far the volume is
good, but its not excellent and there is still a lot
of room to grow our existing futures contracts.
We introduced options in response to requests
from the market. At the end of the day its about
increasing hedging flexibilities and, once we
have made the product available, its up to the
market participants to take it forward and create
strategies around them to manage the price risk.
We want to expand into more commodity
derivatives, and in that respect we are talking to
various physical trade boards. We are an asset
management centre and as an asset management
centre we need to have the instruments available
to ensure that the funds can move around and
stay in the country and need not leave to trade
on other markets because you dont have certain
instruments that they need.
We cannot forget equities, bonds, interest
rates, and of course at some point in time the
currency space. We are working on various sectors
and definitely we will be announcing developments, We see
but we will work with the industries within Malaysia
to explore how we can leverage off the Globex high-frequency
engine to bring Malaysia to the world and bring the
world into Malaysia. traders as part
of the business
Le Noble: I would add that as part of our
partnership with Bursa Malaysia the combination of and the market
leveraging local knowledge and local understanding
of the trade with our experience as an exchange
and we welcome
enables us to really work closely with BMD in its them
thought processes and initiatives around product
development. Chong Kim Seng
8 OCTOBER/NOVEMBER 2012
THE FOW ASIA ROUNDTABLES: BURSA MALYASIA DERIVATIVES
We have a long and well-known history of
innovation at CME Group. Were not short of
products launched and being unsuccessful. Were
not short, either, of products launched and being
very successful, so you know we have an ability
to see both sides of the equation and offer our
experience in a way that can add to the efforts of
BMD.
Mitting: One of the challenges is that there is
an increasingly globalised trading environment
where theres already a lot of established liquidity
elsewhere. In terms of local demand on the
Lai Choon Lim: retail subject of new products, where do you think the
participation healthy demand is? Where should BMD be going next in
its product launches?
Che Chern: Firstly I can see theres demand there
for the dollar/ringgit contract. But I think that
the key point is that you dont need to be too
innovative. There are two big economies out there
that we need to connect to: one is China and the
other is India.
So as long as we develop according to those
demands, we shouldnt go too far wrong. So what
do they need? When we were in China recently
meeting traders, they were talking about the
trading hours, so this one of the things that we
should take back and review. Trading hours should
be more in line with the Chinese market trading
hours, otherwise we are out of sync.
Then there are the products. Although there
has been talk today of launching a gold contract,
many other exchanges have launched gold
including Eurex and the Hong Kong Exchange for
example. But all the liquidity is on Comex. There
is some liquidity on other gold contracts but
Comex is still the most liquid.
But Malaysia could be different, because a
gold contract would be a good inflation hedge
for the local market. Maybe a Malaysian gold
contract could be launched in this respect, maybe
gold could be a dollar-ringgit play. I think that
Asian economies believe in gold.
Then there is rubber. Malaysia is a main
producer of rubber. So the buyers are here, the
buyers meaning the Chinese buying into Southeast
Asia rubber. The sellers are essentially Thai,
We feel retail Malaysian and Indonesian. So given the right
implementation there will be scope for Malaysia
participation to be successful in rubber contracts.
in Malaysia is
Mitting: Azila, how do you feel the international
quite healthy demand for new products?
and it is Azila: Most of our customers are foreign-based
growing and what we hear from them lately is that BMD is
much more visible then before. On a macro view
Steven Lai Choon Lim the demand is about how to access BMD markets
on a larger scale: is electronic access permissible
and if so how do we go about it?
Having established the most optimal
infrastructure, there must be a sufficient amount
of liquidity on BMDs listed products before a
global institutional client can participate either in
a new futures contract that is dollar denominated
or ringitt denominated.
In terms of foreign demand towards one of
BMD active contracts, the equity Index futures has
potential to grow further given the fact the contract
was granted the US CFTC approval in a short
period of time a year ago. For global investors that
are benchmarked against MSCI or FTSE indices,
the only avenue to hedge their Malaysian exposure
would be trading on the one and only available BMD
equity index futures.
We just need to clear that there is scalability
and there is momentum; access is already
something that we have addressed here. Back
in 1997, Malaysia being a fast growing economy
was dubbed as one of the Asian tigers. We did
not have any electronic access then, but now we
are becoming more visible and competitive with
the ability to just point and click and access these
marketsand that will keep the momentum going.
Mitting: Yes and that could become even greater
quite soon with the CFTC approval of DMA access
to BMD. When can we expect that go live and
what will be the impact of that on the market?
Chong: We had an application in progress but
with the introduction of the Dodd-Frank Act
there was a need to resubmit the application.
Basically when we started the joint venture with
CME Group it went through three applications
to the CFTC: one was the approval for direct
marketing into the United States, which was
approved in June 2010.
And then in June 2011 we got another approval
for trading on the KL Index. Now we are waiting
for the direct market access approval. Because of
the Dodd-Frank Act we were told to resubmit again
to refresh our submission, we have done that, so
hopefully well get the approval soon.
Direct access is really important. What it
means is that right now we have got US-based
customers, but they have to trade out of the
United States and back in again, or they use an
entity that is non-US entity.
But once the DMA comes in, it means that
they can go straight through the Globex engine. I
see US participation as very important, and when
we have the DMA approval from the CFTC, we can
take that participation to the next level.
Mitting: Thank you and thank you to all of our
panelists today.