Enchancing Opportunities for the Derivatives Market - Strengthening the Sustainability and Competitiveness of the Capital Market

Enchancing Opportunities for the Derivatives Market

In its efforts to continue to enhance opportunities within the derivatives market towards fostering growth and a more diverse, resilient trading environment, the SC has made key amendments to the Guidelines on Contracts for Difference (CFD Guidelines) and granted approvalin- principal for the relaunch of the Single Stock Futures (SSF) contract. The SC has also introduced the USD Used Cooking Oil FOB Straits (Platts) Futures (FUCO) to broaden the derivative product offerings.

Revision to Guidelines on Contracts for Difference

Following an extensive review of the CFD framework and feedback received from the CFD providers, the SC issued the third revision of the CFD Guidelines on 14 June 2024.

Key amendments to the CFD Guidelines include:

expanding the types of underlying instrument for CFD to units of exchange traded fund, units of real estate investment trusts as well as commodity derivatives listed on Bursa Malaysia Derivatives or a Specified Exchange³; and
reducing the average daily market capitalisation of the underlying corporation from RM1 billion to RM500 million.

In addition to enabling a more diverse range of investment options for market participants, the changes serve to align requirements e.g., where the underlying instrument is shares listed on Bursa Securities, the average daily market capitalisation for a CFD is aligned to the structured warrants framework. Further, operational flexibility has also been granted i.e., allowing the submission of documents by CFD providers via electronic means instead of CD-ROM.

These adjustments ensure that the framework remains facilitative and fosters the growth of available products. While CFDs remain accessible only to sophisticated investors, the pool of such investors has widened following the issuance of Guidelines on Categories Sophisticated Investors in February 2024.

Relaunch of Single Stock Futures Contract

As part of an initiative to revamp and generate vitality in the Single Stock Futures (SSF) Contract, several modifications were made:

Expanding the number of eligible underlying stocks – from 10 stocks to 30 stocks capturing all the constituents of FBMKLCI;
Reducing the contract size of SSF to cater for retail participation – where the contract size of SSF will be reduced from 1,000 shares per contract to 100 shares per contract;
Lowering of trading and clearing fees – from a tiered basis based on the price of the SSF to a flat fee of RM1.00
Modification to speculative position limit and changes to treatment of when there is a corporate action on the underlying securities

The spectrum of changes is meant to enhance the attractiveness of the contract, especially for retail participants. Retail investors can use SSF to hedge their stock portfolios or capitalise on trading opportunities, allowing for greater flexibility and risk management. By attracting this growing segment of the market, the initiative could enhance market breadth and depth, fostering a more diverse and resilient trading environment.

The SSF contract is targeted for relaunch by Bursa Malaysia Derivatives in the first quarter of 2025.

Introduction of USD Used Cooking Oil FOB Straits (Platts) Futures (FUCO)

Used cooking oil (UCO) is a multifaceted commodity that can be repurposed into valuable by-products, including renewable fuels, oleochemical products and animal feed. As a favourable addition to the range of sustainable listed derivatives products available, the introduction of FUCO serves to:

Capitalise on current trends and needs in renewable energy by providing price discovery and hedging tools for UCO players;
Fuel intercommodity trading as crude palm oil, soybean oil and UCO are correlated products that are commonly cross hedged; and
Position Bursa Malaysia Derivatives as the first exchange in Asia to have a FUCO contract.

The contract is also aligned to Malaysia’s commitment towards Sustainable Development Goals (SDG) and NETR of catalysing our biomass energy productions derived from UCO.

The contract was launched by Bursa Malaysia Derivatives on 16 December 2024.

A ‘Specified Exchange’ is a person or body that operates a derivatives market outside Malaysia under section 105 of the CMSA.

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.