KL's commodity, monetary markets merge

KL's commodity, monetary markets merge

KUALA LUMPUR (Bloomberg): Malaysia's Kuala Lumpur Commodity Exchange and the Malaysia Monetary Exchange Bhd. will merge Nov. 2 to form the Commodity & Monetary Exchange of Malaysia, or Comex.

The new entity will trade crude palm oil futures and Klibor interest rate futures to capitalize on lower costs and the inflow of ringgit expected back in the country from now to Oct. 1, said Zaha Rina Haji Zahari, deputy chairman of the Kuala Lumpur Commodity Exchange. She is also the director of commodities brokerage Sri Comm Options & Futures (M) Sdn. Bhd.

Malaysia's central Bank announced a slew of capital controls Sept. 1, saying that Malaysians who hold ringgit overseas have a month to return it to the country.

"The merger makes a lot of sense because it doesn't warrant the cost of running three futures exchanges," she said. The other futures exchange is the Kuala Lumpur Options & Financial Futures Exchange, or Kloffe.

When the merger idea first came up in April, there were plans to list at least three types of derivatives, including a new palm kernel oil futures contract denominated in U.S. dollars.

"But when the government said (Sept. 1) they were going to peg the ringgit, we threw the palm kernel futures contract out," because a fixed currency negates the need to hedge, said Zaha Rina.

Malaysia's central bank last week set the ringgit rate at 3.80 to the dollar. It also said that effective immediately sellers of Malaysian securities will have to keep ringgit proceeds of those sales for 12 months before conversion to another currency, effectively locking foreign investors into the market for a year.

This has deterred foreign investors from trading on Malaysian exchanges. On the Kuala Lumpur Commodity Exchange for instance, foreign investment in crude palm oil futures - which account for 20 percent of total turnover -- has virtually dried up.

Zaha Rina said the two futures exchanges, however, can still count on domestic investors, unlike Kloffe, which has seen a substantial chunk of overseas investors disappear following the capital controls.

"Why would anyone now want to trade on Kloffe when you have no restrictions elsewhere like Simex" in Singapore? Zaha Rina said

By imposing the capital controls, Malaysia is effectively handing its clients "on a silver platter to Simex," the Singapore International Monetary Exchange, a direct competitor.

Kloffe and the Kuala Lumpur Stock Exchange consolidated operations in July.