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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani





First bond futures contract set to be useful hedgi
Wednesday, March 27, 2002 - THE five-year Malaysian Government Securities(MGS) Futures or FMG5, the country’s first bond futures contract to belaunched this Friday, is expected to be a truly useful hedging instrumentfor financial institutions and private corporations with medium tolong-term interest rate exposure to effectively manage their debt andfixed income portfolio.“We believe it is timely to introduce such a hedging tool to help marketplayers with their risks associated with changing interest rates forborrowers, lenders and traders,’’ said Malaysia Derivatives Exchange Bhd(MDEX) chief operating officer Dr Zaha Rina Zahari, who expressed optimismover the future success of FMG5.She said targeted potential users of the contract included insurancecompanies, bond portfolio managers, provident funds, asset managers,corporate treasurers, individual investors and MDEX local members.“MDEX expects this transparent pricing play will assist both local andforeign players to use the FMG5 in their respective trading, hedging andarbitraging activities,’’ Zaha Rina told Star Business in Kuala Lumpuryesterday.Fund managers, for example, could use the FMG5 to adjust the duration of afixed income portfolio to take advantage of anticipated changes ininterest rates.“They can lengthen (by buying futures) or shorten (by selling futures) theduration of the portfolio,’’ she said.A portfolio with a longer duration would be more sensitive to a givenchange in rates than a similar portfolio with a shorter duration.In an environment of declining rates, the longer-term portfolio wouldrealise greater capital price gains, Zaha Rina said.Other advantages of the FMG5 include serving as a pricing benchmark andprice discovery tool, providing information on the future interest ratesmovement, and allocation of assets without having to sell the underlyingMGS.The FMG5 could also boost further development of the Malaysian RinggitBond Market and improve liquidity in the secondary market.To date, the 10 principal dealers are Amanah Short Deposits Bhd,Arab-Malaysian Merchant Bank Bhd, Commerce International Merchant BankersBhd, Citibank Bhd, Hong Leong Bank Bhd, HSBC Bank Malaysia Bhd, MalayanBanking Bhd, Public Bank Bhd, RHB Bank Bhd and Standard Chartered BankMalaysia Bhd.MDEX, a subsidiary of the KLSE, currently trades in the KLSE CompositeIndex Futures, KLSE Composite Index Options, Crude Palm Oil Futures andthe Three-Month Klibor Futures, apart from the soon-to-be-launched FMG5.It is also believed that MDEX is looking at the possibility of introducingsingle stock futures and Islamic stock index futures.