Bursa to reintroduce single stock futures this year

The new SSFs will promote cross-market trading activities between the securities and derivatives markets

by MARK RAO/ pic by TMR

BURSA Malaysia Derivatives Bhd (BMD) plans to reintroduce single stock futures (SSFs) this year to attract new investors and add new commodity contracts to boost interest of the local bourse.

The operator of the local bourse has been trying to develop equity derivatives after the launch of the Mini FTSE Bursa Malaysia Mid 70 Index Futures in Aug last year.

Interest in the country’s equity market and various investment classes has been all but sombre due to lack of participants.

“We plan to further build on our equity derivatives by reintroducing SSFs on new underlying shares later this year to promote cross-market trading activities between the securities and derivatives markets.

“(This is to) offer leverage, ease of short selling and low transaction costs as a step to attract new market participants,” a representative of Bursa Malaysia told The Malaysian Reserve (TMR) in an emailed response.

SSFs were first introduced in April 28, 2006, but failed largely due to absence of market participants and the underdeveloped securities borrowing and lending market at the time.

The contract is currently untraded and unquoted, but is geared at allowing traders to hedge their share exposure risk and speculate on share price movements.

Traders can hold their original stock position but still enjoy dividends.

SSFs also allow trading in “pairs” of stocks whereby you hold both long and short positions in related stocks to exploit the positive developments at one company against the negative or neutral developments of another company.

This enables traders to profit in both up or down markets. Note that you do not need to own any individual stocks to trade SSFs, which are also geared products and cheaper to trade than a direct share investment.

Malaysia’s derivatives, which are largely focusing on commodities with Crude Palm Oil Futures (FCPO), made up 81.2% of the total 1.23 million contracts traded in July this year.

For commodity derivatives, the options on palm olein futures are currently in the pipeline to complement the existing palm olein futures contract.

“We also target to introduce fully Certified Sustainable Palm Oil in 2020,” the exchange noted.

The bourse operator hopes these new products will improve volume and interest in the derivatives market which continues to lag.

In the first half of 2019, trading for Malaysia’s derivatives market fell 14.1% year-on-year to RM33.3 million on the lower number of contracts traded for FCPO and FTSE Bursa Malaysia KLCI futures.

Average daily contracts were down 9.9% over the same period to 49,351 contracts.

Bursa Malaysia revamped and liberalised the rules and directives for both BMD and Bursa Malaysia Derivatives Clearing Bhd, which have come into effect on Aug 15 this year.

They included the introduction of various non face-to-face methods to verify a client’s identity when opening an account, removing the requirement for trading participants to maintain a voice logger for client orders, and allowing registered representatives to advise clients and conduct deals outside business premises.

The prohibition preventing a dual licensee from becoming a proprietary day trader was also lifted, affording greater flexibility for dual licensee holders dealing in both securities and derivatives.

Last month, TMR reported that the changes, while removing some of the bureaucratic aspects to trade, were unlikely to drive higher trading volume as they did not enhance the appeal of the market’s underlying instruments.

Bursa Malaysia said the revamp aimed to enhance business efficiency and flexibility of doing business among the trading and clearing participants.