Evolution of derivatives market in Malaysia

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Evolution of derivatives market in Malaysia

TheKuala Lumpur Commodity Exchange(KLCE) was thefuture exchange inMalaysiaand all ofSoutheast Asia, established in 1980. In 1996, the Malaysian Monetary Exchange was incorporated to assist in the exchange's expansion to financial futures. The Commodity and Monetary Exchange of Malaysia (COMEX) succeeded the KLCE and the Malaysia Commodity Exchange, a subsidiary of the former KLCE. It merged with the Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) in December 2000 and formed the Malaysia Derivatives Exchange (MDEX).

1. Evolution of derivatives market in Malaysia

History

Malaysia Derivatives Exchange Limited (Bursa Malaysia Derivatives Berhad), formerly known as Malaysia Derivatives Exchange Ltd., founded in 1978, by the Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) and commodity and currency exchanges (COMMEX) merger made to meet investor demand for more effective risk management and portfolio growing.

Role in the existing Malaysian economy

Malaysia is one of the world's two largest palm oil producing area, a large number of palm oil exports to the world, a good spot to carry out the foundation for the Malaysian palm oil futures exchanges to create a better market conditions. Since 1980, Bursa Malaysia is the largest palm oil futures trading center, the futures price of palm oil has become an international pricing benchmark trade. Malaysia Derivatives Exchange (BMD) is the main trading products index futures and options, the Malaysian Government Securities futures, crude palm oil and crude palm kernel oil futures.

Functions

1 safe harbor hedge This is the original intention of financial derivatives are widely used where the financial business. Financial derivatives are useful to investors or savers know, separation of various composition and correct pricing of risk, so that they can more effectively allocate funds according to the size of various risks and their own preferences, and sometimes even designed according to the specific needs of customers a special product

2. Speculative

With the safe harbor hedge contrary is speculation that aims to assume more risk to get high returns.

3. Reduce transaction costs

Because of financial derivatives has more features, thus further reducing the formation of the effectiveness of the social transaction costs. Market participants can use financial derivative instruments on the one hand the market, reducing the price trend information as well as to eliminate the risk of the final price of products on the market, on the other hand can be disclosed under financial derivatives markets, develop business strategies, thereby reducing transaction costs and increase operating income

Regulatory structure

Larry Tabb Founder & CEO

Larry Tabb is the founder and CEO of TABB Group, the financial markets’ research and strategic advisory firm focused exclusively on capital markets.

Robert IatiPartner, Global Head of Consulting

Bob joined TABB Group as a Partner in December 2004. After leading TABB Group's Research business, Bob was named Global Head of Consulting in December 2007.

Jeff Alexander Principal. Jeff Alexander most recently was a director on the equities team at Barclays

Matt Simon Principal, Head of Futures Research Matt Simon was promoted to senior analyst in 2012.

2. Malaysian Derivatives Exchange (MDEX)

History

Malaysia Derivatives Trading Limited is a subsidiary of KLSE, which is a futures and options exchange. By the Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) and commodity and currency exchanges (COMMEX) merger, in order to cater to the growing investors manage risk more effectively with a combination of investment demand.

Role in the existing Malaysian economy

MDEX trading is currently in Kuala Lumpur Composite Index futures contracts and index options contracts, Kuala Lumpur Interbank Offered rate of three-month futures contracts and crude palm oil futures contract. All transactions by the Malaysian Derivatives Clearing House clearing, clearing it with MDEX separately managed. This clearing house to ensure that all contracts, thereby ensuring financial stability.

Functions

Derivatives Exchange as a distribution centre for a commodity, and financial needs of production, supply and logistics, and other parties to actively participate in ancillary services. For an active market, the Exchange will absorb different categories of membership, such as the real economy, financial services, consulting and other members meet from the sale, purchase, market demand for different levels of strategic investment, financial investment. Spot Exchange Department as a service hub for the real economy, not only directly serve the real economy, but also by helping members and will serve to enlarge

Administration (team members, governing body)

Chairman

Dato’ Tajuddin Atan graduated with a Bachelor of Science in Agribusiness from Universiti Putra Malaysia and later obtained a MBA from Ohio University.

Director

Bryan T. Durkin serves as Chief Operating Officer of CME Group. He is responsible for the Products & Services, Marketing, Research & Product Development, Technology, Global Operations and Enterprise Solutions Divisions, as well as the company’s global offices.

Director

Nadzirah Abdul Rashid, aged 46, a Malaysian, graduated with a Bachelor of Arts in Accountancy from the University of South Australia.

Alternate Director

Julien Le Noble serves as Managing Director, Asia Pacific, of CME Group.

3. Kuala Lumpur option and financial futures exchange (KLOFFE)

History

KLOFFE, Malaysia’sfirstfinancialderivativesexchangewasestablishedinJulybya consortiumofprivatecompanies.Though the conceptualizationand planningfor KLOFFEhadbeencompleted inearly1990,thesettingupoftheexchangehadtobe precededbytheresolutionofjurisdictionalissuesandlegislation.Jurisdictionwasanissue sincetheexistingderivativesexchange,theKLCEwas acommoditiesexchange undertheMinistryof PrimaryIndustries.Afinancialderivativecontractwouldhaveto comeundertheMinistryofFinance.Inaddition toworkingthes jurisdictionalissues,new legislationwasalsoneededtotradefinancialderivatives. With the resolution of these issues, KLOFFE wasabletointroduce its first product on 15 December 1995.

The first product was aStock Index Future contractbased onrevampedKLCI (Kuala LumpurCompositeIndex).Withtheintroductionofthisindex futurescontract, KLOFFE becamethe secondderivativeexchangeinAsia, after HongKong, totrade its own equity derivative. Exactly five yearslateron 1 December 2000 KLOFFE introduced its second product, index options. The KLCI options as they are known, have call and putoptionsof varying strike prices available for investors. Despite an independent beginning, KLOFFE’s owner sold the exchange to Bursa Malaysia’s predecessor the Kuala Lumpur Stock Exchange (KLSE) inearly1999. For a time KLOFFE was a wholly-owned subsidiary of the KLSE. In December 2000, KLOFFE was merged with COMMEX to form MDEX. With the merger, all derivatives trading in Malaysia was consolidated underasingleexchange, MDEX. Since MDEX itself was a wholly-owned subsidiaryof KLSE,KLSE became Malaysia’s single exchange, trading stocks and both commodity and financial derivatives. With the demutualizationoftheKLSEanditsre-namingasBursaMalaysiaBerthed, MDEX was re-namedBursaMalaysiaDerivativesBerthed.

Role in the existing Malaysian economy

Information about "Kuala Lumpur Options & Financial Futures Exchange (KLOFFE) is provided. It is the Malaysian derivatives exchange which trades in stock index options, stock index futures and individual stock options. It trades in an open-market auction system and is screen-based.

Functions

(1) The use of funds and high efficiency. As trading commodity futures, so when establishing positions The main agricultural futures options , Based on the difference between the deposit paid at the checkout when liquidation is the difference, in this sense, futures and options can be less funds to complete the transaction and, therefore, improve the efficiency of capital use. (2) Facilitate the transaction. As trading commodity futures and options have been standardized, unified, have a high mobility, thus facilitating the transaction. (3) Credit risk is small. Because a future options trading is usually conducted on an exchange, trading partner is the exchange clearinghouse, so credit risk is small.

4. Kuala Lumpur Stock exchange (KLSE)

History

Kuala Lumpur Stock Exchange, founded in 1930, It was re-registered as the Malayan Stockbrokers' Association in 1937. In 1964, the Stock Exchange of Malaysia was established. In 1998, as one of the attempts to weather the 1997 Asian financial crisis, it fully suspended the trading of CLOB (Central Limit Order Book) counters, indefinitely freezing approximately US $ 4.47 billion worth of shares and affecting 172,000 investors, most of them Singaporeans. On April 14, 2004, Kuala Lumpur Stock Exchange was renamed Bursa Malaysia Berhad

Role in the existing Malaysian economy

The Kuala Lumpur stock exchange it provides real home with a seller with a central market, Malaysia shares, stock options, fixed income securities of listed companies and other securities are traded.

The standard exchange and the securities industry in Malaysia is managed by a sound management structure. These rules in an advocate for fair and open is the main idea of the price formation of the market to keep the confidence of investors, provide guarantee for investors, and to ensure fast and reliable information and communication.

At the same time, along with a central deposit ticket system was set up, investors have a efficient securities deposit ticket system, this system covers all the securities listed on a stock exchange. With this system, listed securities paper without moving, while the ownership of securities by an electronic book record tracking.

Functions

Kuala Lumpur stock exchange is one of Asia's largest stock exchange, provide more than 800 listed companies in a variety of investment options. Capital of the larger companies listed on the main trading board, while medium-sized enterprises listed in junior.

In addition, through its located in the fujian international offshore financial center of wholly owned subsidiaries, fujian international financial exchanges, the Kuala Lumpur stock exchange also processing a variety of a variety of monetary and financial tools including investment funds, debt securities, insurance and related notes, equity and intellectual property. These tools can be based on the traditional or the Muslim view. In this exchange trading is action via the Internet.

Bond market

The bond market is a place for the issuance and sale and purchase bonds is (financial markets) is an important integral part A country's bond market is an indispensable part of the financial system

A unified and mature bond market can provide a low-risk investment and financing tools for investors and fund-raisers of the whole society; bond yield curve in all socio-economic levels of financial products revenue base, so the bond market is also conducting central bank money important carrier policy. We can say that a unified and mature bond market form the basis of a country's financial markets.

The main function of the bond market is 1. Finance Function The bond market as a financial market is an important component of having to make those capital flows from capital surplus funding needs by raising funds for underfunded by function. 2. Liquidity oriented features Bonds issued by enterprises with good returns are usually more popular among investors, resulting in the issue of low interest rates, low financing costs; On the contrary, the risk of inefficient enterprises bonds issued by relatively large, to a lesser extent by investors, financing costs than large. Thus, through the bond market, to the advantage of corporate funds to be concentrated, thus facilitating the optimal allocation of resources. 3. Macro-control function A country's central bank as a national monetary policy formulation and implementation departments rely mainly on the deposit reserve, Business of Open Market, rediscount interest rate and macroeconomic policy tools

5. Offshore market

Typically, financial institutions engaged in local currency various countries only deposit and loan business, but after World War II, the world's financial institutions engaged in deposit and loan business in other foreign currencies other than the currency gradually rise, in some countries, financial institutions, thus becoming the world currency deposit and lending center, which specializes in foreign currency deposits and loans of financial activity referred to as an offshore financial. That is, any country, region and city, where the main transactions in foreign currencies (or deposit) subject to non-residents for the transaction object, the banking system and its local and foreign banks formed, can be called offshore financial centers. Eurodollar market is a typical offshore financial center; it is a free trade, freedom of unregulated international financial markets. Offshore banking is part of wholesale banking, large amounts of deposits and loans, banks and trading partners are usually multinational, independent individuals, their business is usually to introduce foreign capital, and then lend to foreign funds.

Closed-end funds

Securities investment funds can vary according to the different scale and whether transactions can be divided into closed-end funds and open-end funds. Closed-end funds have a fixed duration, as opposed to an open-end fund refers to the size of the fund prior to the issue of determining, within the prescribed period and the fund size of fixed investment funds in existence after the issue is completed the overall size of the fund's fixed period, usually in the stock exchanges, investors can buy or sell Units in the secondary market.

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