Bursa Malaysia Derivatives Mulls Palm Oil Options

Bursa Malaysia Derivatives Bhd., a unit of stock exchange operator Bursa Malaysia Bhd. (1818.KU), said Friday it has plans to introduce crude palm oil options amid improving volumes in the futures market.

The trading volumes of CPO contracts on the BMD have risen steadily over the past three months since the exchange migrated its derivatives contracts–comprising commodity, financial and equities futures–to CME Group Inc.'s (CME) Globex trading platform in September last year, gaining access to a wider pool of CME brokers.

"We're working with the broking industry to grow the (CPO) futures market," Chong Kim Seng, chief executive at BMD, said in an interview ahead of next week's Bursa Malaysia palm oil conference.

"Trading volume in CPO futures have grown to a size that now allows for options trade to be created…An options instrument enhances the interest in palm oil," he said.

Options are a versatile form of investment giving investors the right to sell or buy a commodity at a predetermined price within a set time frame.

Chong declined to elaborate on when commodity options would be launched on the BMD.

The average daily volume of the CPO contract during the January-February period rose 51% from a year earlier, a trend that is likely to be maintained for the rest of the year as "there's a greater visibility on palm oil through the Globex platform and there's growing interest from around the world in our market."

Chong said participation by foreign institutions following the migration of palm oil futures to Globex has risen by three-five percentage points to around 30%. The remaining participants are domestic investors.

Volatility in the palm oil market–due in part to unrest in the Middle East and North Africa that has pushed New York Mercantile Exchange crude oil futures above the $100-a-barrel mark–may boost trading volumes in the tropical oil as well.

April light, sweet crude oil futures on the New York Mercantile Exchange are trading 0.7% higher at $102.66 a barrel, close to a recent three-year front-month high of $103.41.

Trading volumes of palm oil futures rose to a record high of 48,704 lots on Feb. 24, data from the derivatives exchange showed. One lot is equivalent to 25 metric tons.

"The past two months have been very encouraging. Now that Malaysia's palm oil has gained visibility, the focus this year is to improve the back-end or the clearing system by the end of the end of the year (in anticipation of growth in trading volumes)," Chong said.

Palm oil prices, which rose close to 40% in 2010 due to supply concerns, hit a three-year high of MYR3,967 a metric ton on Feb. 10, but are down 6% so far this year.

BMD and CME will continue to introduce new products over the next few years, Chong said. The CME Group bought a 25% stake in BMD in 2009.

"The goal is for BMD to have a number of successful Asian contracts in commodities, equities and financial products through the Globex platform," he said.

BMD currently has nine products trading on its existing platform, including FTSE Bursa Malaysia KL Composite Index futures, three-month Kuala Lumpur interbank offered rate futures and palm oil futures.

-By Shie-Lynn Lim, Dow Jones Newswires; +603 2026 1233; shie-lynn.lim@dowjones.com

(END) Dow Jones Newswires

March 04, 2011 04:08 ET (09:08 GMT)

Copyright (c) 2011 Dow Jones & Company, Inc.

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