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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani


Business Times



MDEX to introduce new futures products
Wednesday, May 07 2003 - A NEW palm oil-based futures and two more bondfutures products will be in the market this year, promising investorslonger-term hedging options and a more liquid Malaysian derivativesmarket.

Malaysia Derivatives Exchange Bhd (MDEX) officials told Business Times theexchange will submit proposals on the products to the authorities,including the Securities Commission, within the next few weeks.

The offcials said MDEX decided to introduce the products after having seenthe success enjoyed by the existing crude palm oil (CPO) futures and bythe five-year Malaysian Government Securities (MGS) futures.

Feedback from investors and market participants has indicated that thereis a good demand for these new futures product... they have asked for theproducts, the officials said.

The new futures products are a palm kernel oil futures contract, athree-year MGS futures contract, and another MGS futures contract with alonger tenure of 10 years.

The three-year and 10-year MGS futures contracts will provide bond tradersand investors with an option to hedge in short-term and long-termpositions rather than only through the current medium-term five-year MGSfutures, said a bond trader.

Futures traders, meanwhile, said the new products will help to boost theexchange’s liquidity and provide investors with more futures tradingavenues.

They are confident that the new futures products would be successful andwell accepted on the back of a strong demand for them.

The palm kernel futures contract will complement the existing CPO futuresand as provide an exchange platform for this commodity.

Currently, palm kernel oil is traded physically at a slight premium overCPO prices. On average, the production of palm kernel oil, which comesfrom palm seed, is about one-third that of CPO.

Among others, palm kernel oil and its hydrogenated and fractionatedproducts are widely used either alone or in blends with other oils forbiscuit doughs and filling creams, cake icings, ice-cream, imitationwhipping cream, substitute chocolate and other coatings, sharp-meltingmargarines.

In the oleochemical industry, a large amount of palm kernel oil is nowused in the manufacture of short chain fatty acids, fatty alcohols, methylesters, fatty amines and amides for use in detergents, cosmetics andinnumerable other products.

Malaysia is by far the largest palm kernel oil producer. It accounts formore than 52.8 per cent of world production, while together with Indonesiathey both account for about 80 per cent of world production and 90 percent of exports.

No other country produces more than 8 per cent or exports more than 3 percent.

Apart from the existing CPO futures and five-year MGS futures, MDEX hasthree other products, namely, Kuala Lumpur Stock Exchange Composite Index(KLCI) Futures, Kuala Lumpur Stock Exchange Composite Index (KLCI)Options, and the three-month Kuala Lumpur Interbank Offered Rate (Klibor)interest rate futures.