Zainora Ab Wahid

THE MALAYSIAN
DERIVATIVES
MARKET
Introduction
The purpose of this topic is to
give an overview of derivatives
market in Malaysia.
To have a basic understanding of
the subsequent chapters.
Topics of Discussion
What are Derivatives?
Why Derivatives Market?
Derivatives Market in Malaysia
Participants of Derivatives Market
Regulatory Framework
What are Derivatives?
DERIVATIVES are financial
instruments whose value is
derived from some other
underlying physical commodity or
financial instruments
Why Derivatives Market?
Derivatives products can be used
for:
◦ Managing the risk associated with
holding the underlying asset
◦ Portfolio asset allocation purposes,
and
◦ Income generation through taking a
position in these products
Derivatives market in
Malaysia
1980 KLCE was opened
1985 Crude Palm Oil Futures listed
on KLCE
1995 KLOFFE – Index Futures listed
1996 MME – KLIBOR Futures listed
1998 MME + KLCE = COMMEX
2001 Birth of MDEX – merger of
KLOFFE & COMMEX
Types of Derivatives
EXCHANGE TRADED OVER THE
 Centralized
trading
on an exchange COUNTER
 Standardized  Private negotiations

contracts  Tailor made

 Active secondary contracts
market  Little secondary
 Clearing house trading
 No clearing house
Participants of the Malaysian
Futures and Options Market
Users Regulato
Hedgers
Speculators rs
Arbitrageurs SC

Futures and
Options
Intermediari Market Exchang
es e
Futures Broker BMDB
Futures Fund
Manager
Clearing
House
BMCB
The Regulators
The industry is regulated by the
Futures Industry Act 1993 (FIA)
which regulates futures and
options
The MOF has delegated the FIA
enforcement function to SC
Exchange Functions
Supervise the day-to-day activity of
the members
Define the trading practices in the
exchange
Help prevent any attempt on price
manipulation
Specify the products to be traded and
It is also a self-regulatory organization
where it establishes their Business
Rules
The Clearing House
It guarantees the performance of
all contracts traded
It guarantees the performance of
its members, the clearing house
needs to act as the counter party
to all contracts by its members
It does not guarantee the clients
of the clearing member
Intermediaries
Futures Brokers
Futures Fund Managers
Futures Trading Advisers
Futures Broker’s Representatives
Futures Fund Managers
Representatives
Futures Trading Advisers
Representatives
Users
 Hedgers
◦ Use derivatives to manage price risk
◦ They have (intend to have ) a position in
the underlying instrument
 Speculators
◦ Use derivatives to profit from price changes
◦ They do not usually have a position in the
underlying instrument
 Arbitrageurs
◦ Use derivatives to make ‘riskless’ profit
◦ They do not usually have a position in the
underlying instrument
Regulatory Framework

MINISTRY OF FINANCE

Securities Commission
FIA Industry Act1993

BMDB BMCB
Regulations of Futures and
Options
BMDB regulates its own market
Establishes and enforces its
Business Rules
Co-operates with the SC and
BMCB
CO-REGULATORY
FRAMEWORK

MOF & SC

Co-
regulatory
Structure

BMDB BMCB