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.