Malaysia's first futures exchange opens for trade
Malaysia's first futures exchange opens for trade
KUALA LUMPUR (Reuter): Malaysia's first futures bourse, the
Kuala Lumpur Options and Financial Futures Exchange (KLOFFE),
opened for trading yesterday, bringing the nation closer to its
dream of becoming a regional financial center.
Its first futures contract, based on the Kuala Lumpur Stock
Exchange's Composite Index (KLCI), rolled out at 01:30 GMT, a
little over five years after it was first conceived.
"It is a soft launch, insofar as we wanted to go out gently
and make sure that all systems are behaving themselves and
brokers are comfortable," said KLOFFE's chief operating officer
John Duggan.
KLOFFE has survived criticism from even Prime Minister
Mahathir Mohamad, who once called it "unnecessary gambling", and
the Barings collapse, which almost got it shelved.
The collapse of Barings Bank due to dealings in derivatives by
recently convicted trader Nick Leeson triggered a widespread
debate in Malaysia over the need for a futures trading
institution.
It was finally left to the central Bank Negara and the
Securities Commission to decide its fate. They initiated an
amendment to the Futures Industry Act and toughened other rules
to make trading safer, delaying KLOFFE's launch by nearly a year.
But there were no ecstatic celebrations, not even the once
planned opening by Mahathir, for only the third futures exchange
in the region after Hong Kong and Singapore.
Only 14 brokers, who have received the Securities Commission's
trading license, began operations on the first day and, by noon,
each one of them had struck at least one contract.
The first contract done was for spot month (December) at 1,001
points on the KLCI. Under the contract, the buyer agrees to take
delivery of the underlying security (in this case the index) at a
pre-agreed date and price.
Since there is no physical security that can be delivered in
this case, each index point has been valued at 100 ringgit
(US$39.37), which means the first contract was at 100,100 ringgit
($39,409.45), KLOFFE officials explained.
At the lunch break, there were 78 contracts done, 77 in spot
month and one in next month (January). Four contracts have been
launched, spot, next month and following two quarterly calender
months (March, June).
"Volume in the morning session indicates that the market has
good potential," said James Lau, Chief Executive of CIMB Futures,
one of the 14 firms which started trading.
"Nobody expected an explosive start, and there wasn't one,
which was good," he said.
He said the trend on KLOFFE was in line with the cash market,
the Kuala Lumpur Stock Exchange (KLSE). "This shows we are moving
in the right direction," he said.
Contract values dropped with a decline in the index on the
KLSE. KLCI dropped 7.61 points 0430 GMT to 988.65 and the spot
month contract dropped to 990.00.
Duggan said the number of trading houses will increase to 40
by early next year.
He said a lot of work had gone into making trading on KLOFFE
safe and transparent. "The KLOFFE system is one of the most
transparent systems in the world."
He said KLOFFE officials had visited broking houses for
inspection to ensure that they were ready to start trading.
KLOFFE will continue with the KLCI-based contracts until late
next year, when other new products including stock options will
be introduced, Duggan said.