Malaysian Derivatives Exchange Gets Approval to Launch Gold Futures Trading

Malaysia joins the growing trend of gold futures trading offered by Asian derivatives exchanges. The country's main trading venue, Bursa Malaysia, received regulatory approval by the Securities Commission Malaysia, a self-funding statutory body, that supervises exchanges to launch contracts.

The Exchange , whose roots go back to the 1930's, has positioned itself as a preferred destination for trading of securities and issuance of IPOs, in the Southeast Asian region. Malaysia has been following in the footsteps of Singapore, which is regarded as Asia's financial hub. The new commodities contract strengthens Malaysia's role in the region.

Bursa Malaysia Derivatives Bhd, CEO, Chong Kim Seng spoke about the need for a diversified product range at the exchange, in a comment to the media, “We need to become fully-fledged (exchange operator) and diversified. We are aware of the need for more margin hedging instruments."

According to official data from the exchange's website, the new contract, FGLD, will go live on the 7th of October, 2013.

The exchange has prepared a list of FAQ's for investors about the new contract on its website. The contract will be priced in the domestic currency, in an attempt to reduce currency risk. The new contract will be useful for investors who have been forced to trade in offshore gold contracts, either on the CME or in neighbouring countries exchanges', such as Singapore or Hong Kong, both regions which offer gold contracts. In addition, the country has been piling pressure on investors who engage in spot FX, having a local gold contract that is liquid and priced on the international markets, will entice traders to divert their attention to the yellow metal contract.

The contract is cash settled, its contract size is 100 grams and it has a 5 ringgit tick value. The contract will be available during Malaysian business hours, between 9am to 7pm.

In the FAQ section on the Bursa Malaysia website, the trading bourse provides useful reasons for investors to trade in gold, these include, protection of asset value, locking in price movements and taking advantage of gold price Volatility .

With global gold markets trading in an absurd fashion this year, the precious metal has been a regular on mainstream news, and hence the increased interest from retail investors. “The gold and precious metals business is being hotly discussed at the moment, so we are hoping to present them to the market at some point in time,” added, CEO, Mr Chong Kim Seng.

The new contract which is priced in ringgit, can potentially open up new trading strategies in the USD MYR market. Arbitrage traders looking to exploit the price of the domestic gold contract compared to the CME price, thus creating new trading opportunities.