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2.6 ORIGIN AND GROWTH OF DERIVATIVE TRADING
Derivative instruments prices derived from First futures trading took place in japan.
specification and price of the underlying The asset transacted is usually a
asset. commodity or financial instrument. (e.g
Originated from forward transaction. rice,grain).
FORWARD is a simple agreement A Futures contract is a standardized legal
between two contracting parties. agreement to buy or sell something at a
predetermined price at a specified time in
the future, between parties not known to
each other.
2.7 THE STRUCTURE AND DEVELOPMENT OF THE DERIVATIVE MARKET IN
MALAYSIA
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Malaysian derivative market includes the trading of forward, futures, options and swaps.
Oct 1980 - Malaysia joined the derivative trading community & the launch of crude palm oil
futures traded at KLCE.
KLCE also trades the other national agro-based commodities – rubber, tin & cocoa.
For this reason – KLCE was named the 1st South-East Asian multi-commodities futures
trading in 1991.
Malaysian commodities futures – regulated by Commodities Trading Commission (CTC)
under Ministry of Primary Industry until 1998 & traded contract cleared by KL Clearing
House (Malaysian Futures Clearing Corporation since 1985)
Dec 95 – Malaysia became the 1st nation outside Japan to trade the local-based index with
the trading of KLCI futures at the KLOFFE.
May 96 – KLIBOR launched at MME.
Dec 98 – KLCE & MME merged to form the COMMEX.
May 2001 – KLOFFE & COMMEX merged to form a single derivative market known as the
MDEX.
Mac 2002 – MDEX launched the 1st bond futures contract based in ringgit on the MGS.
2005 – MDEX is known as BMDB and MDCH known as BMDC.
MALAYSIAN DERIVATIVE CONTRACTS AND EXCHANGE
Currently, Malaysia has a single derivatives exchange known as Bursa Malaysia Derivatives
Berhad (BMDB). Prior to the demutualization of Bursa Malaysia, BMDB used to be known
as MDEX (Malaysia Derivatives Exchange).
This new exchange which began on 11th June 2001 was the result of a merger by Malaysia’s
two previous derivatives exchanges COMMEX and KLOFFE.
Though COMMEX was the older of the two, KLOFFE was the exchange that introduced
Malaysia’s first financial derivative.
COMMODITY AND MONETARY EXCHANGE OF MALAYSIA: COMMEX
COMMEX which was the result of a 1998 merger of two exchanges had its beginnings in the
Kuala Lumpur Commodity Exchange (KLCE). The KLCE which was Malaysia’s first
derivative exchange was established in 1980. As the name suggests, the KLCE was
established to introduce and trade commodity derivatives.
The first derivative contract introduced by the exchange was the Crude Palm Oil (CPO)
futures contract in 1980.
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THE KUALA LUMPUR OPTIONS AND FINANCIAL FUTURES EXCHANGE
(KLOFFE)
KLOFFE, Malaysia’s first financial derivatives exchange was established in July 1993 by a
consortium of private companies.
This first product was a Stock Index Futures contract based on a revamped KLCI (Kuala
Lumpur Composite Index).
With the introduction of this index futures contract, KLOFFE became the second derivative
exchange in Asia, after Hong Kong, to trade its own equity derivative.
Exactly five years later on 1st December, 2000, KLOFFE introduced its second product,
index options. The KLCI Options as they are known, have call and put options of varying
strike prices available for investors.
BURSA MALAYSIA DERIVATIVES BERHAD (BMDB)
Clearing House for the exchange traded derivatives market in Malaysia.
Its primary function is to ensure that the financial obligations of derivatives contracts entered
into on the Exchange are performed in a timely manner.
It carries out this function by becoming the counterparty to these contracts, assuming the
credit risk of its Clearing Members and managing centralized risk.
Formed in December 1995 to clear stock index futures, and in May 1996 it began clearing
interest rate futures. In November 1997 it merged with the clearing house for commodities
futures, Malaysian Futures Clearing Corporation Bhd (MFCC).
BMDB has the following products:
• Commodity
• Crude Palm Oil Futures (FCPO)
• USD Crude Palm Oil Futures (FUPO)
• Crude Palm Kernel Oil Futures (FPKO)
• Equity
• KLCI Stock Index Futures (FKLI)
• KLCI Index Options (OKLI)
• Single Stock Futures (SSFs)
• Financial
• 3-month KLIBOR futures (FKB3)
• 3-year MGS Futures (FMG3)
• 5-year MGS Futures (FMG5)
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INDICATES THAT WE SHOULD KNOW IN BURSA MALAYSIA AND THEIR
MEANING[ CITATION Bur \l 1033 ]
MM: Main Market
SW: Structured Warrants
AM: ACE Market
ETF: Exchange Traded Funds
LN: Bond & Loan
LP: Leap
