KL to start futures exchanges amid hurdles
KL to start futures exchanges amid hurdles
KUALA LUMPUR (AFP): Malaysia will proceed to launch two financial futures exchanges by year's end despite being jolted by the downfall of British merchant bank Barings plc due to failed derivative deals, officials said yesterday.
"At this moment, plans are intact for a year-end launch of the two exchanges," said a senior financial official, amid confusion sparked by Prime Minister Mahathir Mohamad's remarks that Malaysia did not need to trade financial derivatives.
Mahathir said on Friday he did not see the need for Malaysia to introduce derivatives trading as it was a form of gambling that could wreck other financial institutions as it did Barings.
His comments came after his deputy, Anwar Ibrahim, said Malaysia had no plans to overregulate its emerging financial futures markets amid concern over the billion-dollar financial derivatives fiasco that broke 233-year-old Barings.
Officials of the Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) and Kuala Lumpur Futures Market (KLFM) said plans had not been altered by the Barings collapse.
KLOFFE is to trade in equity-based derivative products including stock index and stock options, while the KLFM will focus on trading in interest-rate futures.
Mahathir, clarifying his remarks made on Friday, said at the weekend that the existence of a derivatives market in Malaysia could be beneficial if properly regulated and not misused.
"KLOFFE is a good thing ... but for hedging and not for speculation," said Mahathir, admitting that it would be difficult, however, to impose regulations to prevent speculation.
Mahathir said there would be a futures market in Kuala Lumpur for commodities and "other things".
The prime minister had on Friday likened derivative trading to betting on horses, which he said, was carrying speculation too far.
Caution has been heightened concerning the risks and pitfalls of derivatives following the collapse of Barings under the weight of an estimated billion dollars in losses allegedly incurred by 28-year-old trader Nick Leeson.
"Mahathir has always been very concerned with the unscrupulous use of financial instruments, especially after the central Bank Negara made massive losses trading currencies," said the official who declined to be named.
The Barings debacle had made the government aware of the need for proper surveillance and good internal controls, the official said, stressing that no amount of laws and regulations could legislate against dishonesty and fraud.