Malaysian brokers to trade futures and derivatives

Malaysian brokers to trade futures and derivatives

KUALA LUMPUR (AFP): Malaysia's Securities Commission said
yesterday it would soon allow stock-dealers to trade in futures
and derivatives on the country's two financial futures exchanges
as well.

Liberalizing dealers will allow them to perform the role and
function of futures brokers, commission chairman Mohd. Munir
Majid said.

"With the liberalization, market participants will have better
access to trading in the derivatives market and the necessary
information with respect to the market," Munir told a forum on
"The success of derivatives markets in Malaysia."

The conditions under which this liberalization is going to be
implemented have already been discussed with the industry.
"The ball is very much in the industry's court," Munir said,
adding that he would ask the Kuala Lumpur Stock Exchange (KLSE)
to act speedily to amend its rules.

Brokerages and futures firms that have been asking for the
liberalization should move ahead speedily to implement the
changes, Munir said.

Under current KLSE rules, dealer representatives trading in
equities are prohibited from trading on the two financial futures
exchanges -- the Kuala Lumpur Options and Futures Exchange
(KLOFFE) and the Malaysia Monetary Exchange (MME).

"This prohibition is not only inefficient in terms of use and
sales force but also stands in the way of making the benefits of
exchange derivatives more readily available to the retail
market," he said.

Munir said KLOFFE had proposed to introduce "market-making" to
boost liquidity in the derivatives market.

"This would not only apply to options contracts on the futures
as well as on the individual stocks, but would also have a
salutary effect on the liquidity of futures contracts as well,"
he said.

Market-making activities on the MME had been encouraging,
Munir added.

"Market making is a relatively new skill not possessed by many
Malaysian intermediaries. But it is a skill that has to be
nurtured," he said.

In October, trading via market makers accounted for 51 percent
of total trading in the benchmark three-month interbank futures
contract, he said.

A market maker encourages dealing by varying the prices of his
stock to promote its sale or purchase.

"Competitive and committed market-making will enable
institutions to have the confidence to enter into, and take
offsetting positions at will," Munir said.

MME was launched in May and trades in interest rate futures,
while the privately-run KLOFFE was launched in December last year
and trades in the KLSE's composite index futures.