BMD mart needs FKLI volume boost to grow

By MARK RAO 

Bursa Malaysia Derivatives Bhd (BMD) needs to encourage trader interest in the FTSE Bursa Malaysia KLCI Futures (FKLI) contract and new products to boost volumes traded and reduce dependency on Crude Palm Oil Futures (FCPO) contract amid concerns over slow growth.

An industry analyst said a lack of contract diversity in the listed derivative space in Malaysia was the key reason behind the marginal growth recorded last year.

In 2016, FKLI contract volume rose only 0.7% year-on- year to 14.2 million contracts, with the FCPO accounting for 80.3% of all contracts traded.

Despite the low growth, the derivatives market contributed to a sizeable RM88.7 million, or 18.8% of the total RM472.7 million in operating revenue brought in by Bursa Malaysia Bhd in 2016.

The analyst who spoke under condition of anonymity told The Malaysian Reserve (TMR), the FCPO contract — while volatile — promises steady but slow the exchange (BMD) may need to introduce a unique product to bring up trading volume, while simultaneously attracting markets — foreign or local — to enter the domestic derivatives space.

“Recent products launched such as tin and gold contracts are not very actively traded but the market has to strive to find the attractive product suited for traders.”

Last week, the Securities Commission Malaysia (SC) introduced clearing for securities and derivatives as part of the regulatory framework, aimed at decoupling clearing and trading functions to allow intermediaries to specialise in their niche services.

BMD CEO Jamaluddin Nor Mohamad said the move will help boost the futures market in the country, with the new framework allowing traders the flexibility to focus on their areas of expertise and capital efficiency.

“We will also be looking at how to further support the SC to strengthen the market, as we expect a stronger showing this year,” Jamaluddin told TMR when contacted yesterday.

“Growth will be driven by the commodity sector and increased volatility, coupled with new and broader participants coming into FKLI,” he said.

Traders remain cautious on the industry, with prospective regulatory changes in US and European markets dampening traders’ willingness to explore exchanges outside the home front.

Kenanga Deutsche Futures Sdn Bhd CEO and head of listed derivatives Azila A Aziz predicts total contracts volume for FKLI to hit 14.7 million by the end of this year, based on the 1.2 million average contracts traded in the first five months.

If achieved, the volume would represent a 3.5% increase over 2016.

Jamaluddin said the BMD is aiming to secure approval by this year to launch a new futures product.

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