Bursamalaysia Derivatives - Local Member Zone

2008-03-23T10:48:00.003+08:00

20080323 At the ATIC 2008 (Asia Trader and Investment Convention) Aminvestment Bank had a demonstration of it's front end Trader Connect, a DMA (Direct Market Access) solution for derivatives trading of Bursamalaysia futures and options contracts. Indications are that there will be an official launch in the next 1 to 2 months, and currently they are accepting indications of interest to open account to trade futures contracts through DMA.

This is the first step in makeing the move up to more liquid and mature markets. Commission rates will go down to as low as RM10 for retail customers. Hopefully the 'big bang' which has eluded Malaysian markets due to lack of foresight by the old administration's outdated thinking will hit the markets on Bursamalaysia.

What is more exciting is that the platform will eventually be able to offer multiple DMA access to other market centres such as CME, HKFE, SGX etc. Traders will be able to access international markets through a single terminal.
So call up Aminvestment Bank futures division and register your interest, whether it be retail or local participants and make a difference.

No more 70% tax exemption on profits accruing to Local Participants

2007-12-10T19:14:00.001+08:00

A situation has arisen whereby the following is occuring that might impact the trading in futures contracts by Local Participants:

The Ministry of Finance has not renewed the 70% tax exemption for profits made by Local Participants trading on own account on Bursamalaysia.
The Exchange is now appealing on behalf of Locals to reinstate the tax incentive.
Many 'big kaki' have expressed the disincentive of higher tax as making the business of trading on own account as Locals not viable.
Does not the Capital Market Masterplan call for development of the capital markets, of which derivatives are a part? Without tax incentives, Locals may drop out of the market, henceforth reducing the depth and liquidity of the market.
Why the MoF are hawking on the maybe RM2m in tax for locals, whereby they can forgo the Real Property Gains Tax (RPGT) in billions of ringgit. Is it a case of robbing the poor to give to the rich?
In fact trading is a risky game involving potentially huge losses, so there should be no tax on CAPITAL GAINS, which is what profits from trading futures contracts are. Stock operators reap billions from goreng stock and are tax free....

Hopefully sanity prevail and the right course of action comes about.

Coming to proposed launch date Nov 5 for DMA

2007-10-29T22:41:00.000+08:00

Well, the Bursa website section on DMA has gone off the map. Maybe they are waiting for confirmation that DMA will truly go ahead. Let's hope so, with no more delays....

What is DMA?

2007-09-09T11:09:00.000+08:00

I want to write something on DMA as pertaining to Bursamalaysia. DMA stands for Direct market Access, a way to route orders to Bursa Trade for matching and execution. Bursa's MD has already said that Bursa intends to launch DMA for derivatives next month.(Oct 2007) But even amongst some brokerage firms, there is a misconception on what DMA is. They talk of "It will never happen on time, there sure to be delay lah" "very expensive, using lease lines...." This is what I think. In order to get maximum benefit, yes you can provide lease lines to the institutions who are b'big' and want secure access, but the way the big bang will come is if the internet access has emphasis. Internet access trading will open up the markets to the true 'supply and demand' equation that drives price discovery. Speed of execution (instantaneous) is another benefit. Brokers must push and drive the move towards DMA, in my opinion. Just take a look around and see how direct access internet trading dominates the professional trading landscape in the US, and just look across the causeway for th eexamples in Singapore. Then the world will be Bursamalaysia's oyster.

2007-09-03T23:25:00.001+08:00

According to this news article in thestar.com.my, The head honcho of Bursamalaysia Bhd has given target launch date for DMA to coincide with USD CPO futures contract. If the deadline is met, Bursa will need to be commended to bring the exchange in line with the global exchange community. Could be the 'big bang' in volume may hit these shores. Time will tell.

DMA for derivatives in Nov 2007?

2007-08-25T11:13:00.000+08:00

Heard a rumour that the first few derivatives brokers will launch the DMA in early November 2007. 7 months after Bursa made any announcement on the DMA. If true, is an exciting development where Malaysia moves to the big bang of a level playing field for its financial markets.

Local Member Forum 4 April 2007

2007-04-12T17:50:00.000+08:00

Bursamalaysia held a forum for Local Participants, outlining efforts to boost the number of Locals joining the industry to trade on own acoount. The exchange ask existing Local participants to spread the word on the easier mode of entry to become a Local Participant, who have trading rights on the Exchange trading system, receiving rebates and benefits, essentially they act as liquidity providers for Bursamalaysia Derivatives products.

Local Member Forum 14 Dec 2006

2006-12-14T21:53:00.000+08:00

There we were, a bunch of Local Members of Bursamalaysia, at the forum, which had an agenda including:

Announcement of the reduction of the Local Member fee from RM20,000 to RM10,000. Basically the Exchange wants to reduce the RM20,000 entrance fee to RM10,000, in view of attracting more local members to trade on the exchange. However consensus among locals is that: "Why have the entrance fee in the first place?" because the exchange is already demutualised, locals should only have to pay RM100 per annum like in SGX. Another Local Member raise the issue of whether the Exchange can hold the 'membership' money, seeing tthat the exchange is now demutualised. This goes back to the time the exchange splashed out plenty of money to the remisiers (who didn't pay any 'membership' to the exchantge), in terms of IPO shares for FREE. During that time nobody cared a cahoot for the futures industry (futures brokers and Local members) and participation in this 'rewarding remisiers for their contribution to the capital market. It denegrades derivatives market participant's 'contribution' or 'non contribution' it seems the exchange views. There will be no grievances right now about membership if the mistake was not made to brush the derivatives market aside from the IPO process.
Redemption of the RM10,000 as a result of reduction in entrance fee to existing local by way of fee waiver. The exchange cites 3 proposals to the Board: a to pay back as cash b pay part cash and part subscription fee waiver c fully set off against subscription waiver. The decision of the Board was to have subscription fee waiver, because returning cash would impact on the P&L of the Exchange to the tune of RM1m. This is nonsense, because the subscription fee waiver is also an impact on the bottom line, only it is deferred and doesn't affect cash balances. Either the exchange personnel did not fight for the cash option hard enough or the Board just blatantly bulldoze through this decision. The Locals are disgruntled, some suggest that not only RM10,000 be paid bac, but the entire RM20,000 either in shares of Bursa or in cash. This is only logical as capitalizing the Local's entrance fee would finally recognize the Local contribution to the capital market as a valuable asset.(in the share capital of the Exchange)
How to make admission of Locals less bureaucratic. If there is no exit mechanism, and once unsuccessful locals stop trading, they are locked in a debt of RM1,200 per annum till death and beyond to their children, no one will be interested to be the local.
How to attract more Locals into the market. Member gets member rewards scheme for existing locals. The feeling is that without the avenue of exit and inactive locals having to be locked into RM1,200 per annum for the rest of her/his natural life (and to their children) nobody will be interested to be a local.
Reactivation SSF: Locals as liquidity providers. Locals should not be relied upon to do this market making role. Organizations like PNB, Khazanah should fulfill this role. Specialist market makers like Interactivebrokers should be invited to make the markets.
Any other matters.

So, the exchange officials say they will go back to the Board. But the Locals feeling is that this will bulldoze through without regard to their views. It is best for the exchange to start afresh, pay back the RM20,000 in shares of equivalent value (which recognizes the Local contribution as valuable asset), adopt the SGX model, whereby anyone can trade as local for SGD100 per year. Then there will be no disgruntled people, satisfaction and utility will afflict everyone, everybody will feel a sense of self worth, contentment AND the real business of building a deep and vibrant derivatives market can be gotten on with.

2006-11-24T20:11:00.000+08:00

20061124 Further to the failed launch of PAM and Bursatrade on Oct 2, this week we had a successful launch of the new trading engine and use of the PAM workstation for derivatives trading on Bursamalaysia. Congratulations to Bursamalaysia for moving into the digital age. Now we eagerly await the advent of DMA (Direct Market Access) on Feb 20 (3 month after PAM launch). Further down the track, equities and derivatives will both be traded on the same platform, further contributing to the 'big bang' in volume explosion. In addition, next year, the futures, securities and fund raising legislation will all be merged into the single Capital Markets Services Act, paving the way for dual licensing. Exciting times ahead for capital market participants in Malaysia.

2006-11-20T18:16:00.000+08:00

20061120 6:07 pm. This was a snapshot from the www.bursamalaysia.com website, pertaining to the trading system that the derivatives market uses. As of today 20 Nov 2006, Bursamalaysia switched over to the much delayed trading engine of Bursatrade (formerly CTP) and use of the PAM workstation. From all accounts there were lots of confusion regarding the use of the system, with trade matching and confirmations reported as slow, trading states etc. We are in the so called MSC (Multimedia Super Corridor), but how come the Bursamalaysia website do not have user guides, links, FAQ pages pertaining to the new system to help users get more familiarised with the systems and procedures? The website is still referring to the old KATS (Kloffe Automated Trading System)......

Bursamalaysia discriminating against the old local members

2006-11-11T20:56:00.000+08:00

I have heard from a fellow local, who has received a circular from Bursamalaysia, regarding the reducing of the seat price to RM10,000. If what was related to me on what was on the circular is true, essentially the decision is made that:

The old local seats will now have 'value' RM10,000, a dimunition of value of RM10,000. To this end, the local members will not be paid back RM10,000 cash, rather there will be a waiver of the annual subscription of RM1,200 for a period of 8 years and 4 months.
New local memberships issued by the exchange will be priced at RM10,000 with annual subscription of RM800 per annum.

Why are old members discriminated against and treated as dirt by Bursamalaysia? Why is the annual subscription remaining at RM1,200 instead of being on par with new memberships of RM800 per annum. Bursamalaysia actually don't regard local members as assets to the exchange, disregarding the liquidity provider role of local members, who make up 15% of FKLI trading volume and 38% of FCPO trading volume. Another perplexing thing is that not all local members were sent the circular, indicating Bursamalaysia don't look after the locals, who make up the lifeblood of their futures markets. At the very least, the annual subscription waiver should be for 12 years 6 months.(RM800 per annum) Better suggestion is to swap old seats for the new (compensate old locals with RM10,000 cash), or pay back old locals RM20,000 and give them option to take up new membership, so that all will pay RM800 annual subscription. Rules shuld also amend to say "Local members who do not actively trade, or lease out the seat will be exempted from paying annual subscription." Trading is a high risk business and success is not guaranteed. Hence it is unreasonable to lock in locals who are 'knocked out' of the market into paying a debt of RM800 per annum for the "term of his/her natural life". Wiping the slate clean will:

Appease a disgruntled number of old locals. Let the survivors stay. Let those who want out an avenue to get out.
Streamline the new membership structure, clearing the way for new marketing drive to get new liquidity providers.(locals) A sweetener would be to give locals ability to trade as the proposed 'proprietary day trading' class (equity products) in Bursamalaysia.
Cut out administrative hassle of tracking waiver of annual subscriptions.

Lean and mean will serve Bursamalaysia organisational objectivs of enhancing shareholder value. Try not to create animosity and administrative hassles.

PAM workstation for Bursa Derivatives launch Oct 2 2006

2006-10-02T10:27:00.000+08:00

Today was supposed to be the much awaited (dreaded) launch of the PAM workstation as the new Bursatrade for the derivatives market. Never got off the ground, as simulation on Saturday revealed major flaws with lost trades, matching problems.

I am not an expert, but from my (layman) perspective, this is how I see it. Bursatrade is the trade matching engine, with servers at Bursa connected to servers at the broker's offices. Front ends like PAMS in turn connect to the broker's servers in order to be able to key in orders, which are routed through the broker's servers to Bursatrade for matching, and confirmations returned via the same means. In actual fact, DMA with open API will achieve the same thing. Brokers need set up DMA servers, which connect to the Bursatrade servers. Open API will allow brokers to design front ends (like PAM) to connect to the DMA server.(which can be intranet or through the internet) This way the system is flexible and matches the customer's needs. Feedback from market participants is that the PAM is a cumbersome user unfriendly front end, which Bursa arm twists the participants to purchase at RM6,300 each, with ongoing 'database fees'.

Thus the solution is to have open flexible system, with brokers given leeway in deciding to use intranet systems and also to offer full fledged internet trading to customers on a STP (straight through processing) basis. Foreign fund managers, hedge funds are all looking for speed, anonymity and electronic execution in today's trading environment. DMA is the enabler of that.

Direct Market Access (DMA) for Bursamalaysia Derivatives

2006-09-24T12:45:00.000+08:00

With the impending launch of the Bursatrade, initial phase for derivatives trading slated for Oct 2, 2006, DMA could soon become a reality, propelling Bursamalaysia to experience the 'big bang' most world markets have experienced from direct access trading technology.

Bursamalaysia Derivatives is holding a presentation "DMA for the derivatives market" from 12:30pm on Tuesday 26 Sep 2006 for locals (as far as I know). Locals should contact Bursamalaysia to see if they can register to attend.(+60320347000) DMA sounds exciting, but the structure has to be correct, with zero human intervention once the order button is pressed (unlike the bogus online trading we have currently with online stock trading on Bursa, where a button pusher has to press the button to retransmit the order from the broker's office to the exchange matchnig servers) Straight Through Processing is the key to providing the level playing field for all market participants, locals, retailers, institutional players and prop traders alike. Because of the benefits of technology, the costing of DMA is also imperative, that it be kept low.

2006-08-27T10:24:00.000+08:00

20060827 JADE will be going 'live' next month, with the initial futures contract to be traded being the TSR Rubber futures. Slated to come next will be a USD denominated Cruce Pal Oil (CPO) contract, which by all reports will be a physically deliverable contract. From the grapevine, there is some rumours that Bursamalaysia will be introducing a USD CPO futures contract, the motives of which would be to preserve Bursa's CPO contract as the preeminent pricing benchmark. Question is can Bursamalaysia compete?(seeing that the Securities Commission scuppered Bursa's intended licensing agreement to sell the CPO settlement prices to JADE)

Technology: In this sense, the Bursatrade system (to be launched 11 Sep 2006) has some inherent disadvantage. As the snapshot of the JADE screen on its technology shows, their system will be an open architecture API, which will enable users to build their own front and back end interfaces or commission third party software for market access. Bursatrade, at launch will be a plain vanilla concern, with rigid PAM interface, no open API, and no avenue to tap the liquidity that online internet trading (STP=straight through processing). In order to bring the technology aspect up, Bursamalaysia needs to expediate the release of open API and direct straight through processing access for internet trading. If the online trading model for stock trading on Bursamalaysia is adopted, the market will be at a considerable disadvantage to JADE's model. As it stands, Bursa's so called online stock trading is nothing more than order routing to broker's screen, where a human has to click the button to allow the order to be sent to the Exchange servers for matching. The typical time for this is in the range of 10 to 20 seconds to complete the order. STP should take just a few seconds to route the order, because the human element is eliminated.

Access: JADE will utilise the resources of ECBOT, the online trading network of the CBOT, which has 12 data hubs around the world, with 1,200 terminals able to access internet trading, not to mention the client order entry applications through the public internet which numbers in the thousands. Unfortunately, Bursamalaysia has no answer to this width and breadth of reach. One way is to enable access to direct trading via releasing the open API to Bursatrade.

Clearing Members: Looking at the JADE Clearing Members list, it can be argued that users of the futures contracts may take the 'wow' factor of the names (who's who in global finance) into consideration in deciding which centre to trade through.

ABN AMRO Futures (Singapore) Limited

Barclays Capital Futures (Singapore) Private Limited

Calyon Financial Pte. Ltd

Credit Suisse Securities (Singapore) Pte Limited

DBS Vickers Securities (Singapore) Pte Ltd

Deutsche Futures Singapore Pte Ltd

Fimat Singapore Pte Ltd

Fortis Clearing Singapore Pte. Ltd

Goldman Sachs Futures Pte Limited

HSBC Futures (Singapore) Pte Ltd

J.P. Morgan Securities Singapore Private Limited

Man Financial (S) Pte Ltd

Mizuho Futures (Singapore) Pte Ltd

OCBC Securities Private Limited

Ong First Tradition Pte Ltd

Phillip Futures Pte. Ltd

UOB Bullion and Futures Limited

Trading fees: This will be US1 per contract for member and proprietary trades on JADE. The JADE CPO contract, however will be twice as large in notional value terms.

In the finan analysia, Bursamalaysia has the work cut out, in the head to head battle with JADE. One part of the solution is readily available; that is for Bursamalaysia to bring the technology up to scratch with whatever JADE offers. Releasing the open API and go for full fledged direct access online trading, may bring about economies of scale from technology, reducing trading costs and enable the Bursamalaysia Derivatives (and stock) market to march into the 21st century and experience the 'Big Bang' of open access trading that the majority of the world's markets have experienced.

Bursamalaysia Derivatives proposal to reduce the 'entrance fee' from RM20,000 to RM10,000 for Local Participantship

2006-08-10T16:32:00.000+08:00

First of all, let me commend the management of Bursamalaysia for proactively seeking ways to improve the market , this scheme will go a long way to attracting more interested liquidity providers to trade as a local on the xchange.

Bur how the local have been oppressed by big brother. When I first joined as a local member, we bought a seat. The 'Business Opportunities' seminar to recruit individual traders on the then KLOFFE, lauded this as a trading right, an investment like on SIMEX, which could potentially increase in market value upon demutualisation. In the business rules at that time this was a seat, not a participantship, and the words 'non refundable entrance fee', was not in the Business Rules. Along came the demutualisation of KLSE, which had already taken over KLOFFE, KLCE. No increase in seat value, no exchange for shares, nothing.

Anyway, Bursa has asked for comment on this latest proposal, which I set out below.

My opinion is the RM10,000 be returned as cash.

If the exchange wants to run the proposed scheme, exchange shouldsafeguard the interests of existing members by:

1 Exchange should not issue new local membership until existing ones all taken up for lease/sale and trading rights utilised.

2 The waiver of annual subscription should be for 10 years at Rm1,200 per year, because the net present value would be approx RM10,000 in today's Ringgit.

3 Local participant holders who do not trade should not be charged the annual subscription, waiver amount should not be drawn down every year. Rules should be amended to indicate this.

4 Trading rights, concessions, scratch trade should be in force for the 10 year period, rules also to state the Local trading rights and exchange, should always result in trading costs much lower than retail commissions, exchange fees and clearing fees.

The exchange must realise that when open access comes about, there will be a 'big bang' and inevitably there will be a levelling out of the playing field, and local's rights must be preserved.

DJ News-Bursa to issue more Futures Trading Permits

2005-09-05T16:18:00.000+08:00

A DJ Newswire item appeared today pertaining to efforts by Bursamalaysia to wake up ome of the Capital Market participants in Malaysia. But what about the 'long only' institutional investors like fund managers and asset managers. Did they not learn in their CFA studies, the range of derivatives that can afford a means of risk management or buying insurance for the portfolios they manage. Bursa can maybe ask them whether personally they buy life insurance, medical insurance etc and why not they buy insurance for the portfolios they manage?

(newswire by Dow Jones News)

2005-08-24T07:44:00.000+08:00

HDM Futures now provide customers with live qutes. Commendable on their part to promote this excellent trading instrument which is steadily building depth and liquidity. Next step is for Bursamalasia to push the mrket into 'big bang' with open access (pen API) to facilitate online internet trading. Volume and liquidity wil double in quick time.

Remote trading solution projcet

2005-08-05T09:45:00.000+08:00

Bursamalaysia Derivatives has the project in place to ofer remote trading for local through the internet solution. In this regard, some of the local members think that the following are important considerations.

local should be allowed to trade 'remotel' through webpam, without having to have a station at clearing members place.
if need be, maybe locals can opt for PAM workstation or WebPAM. That is they might want to be station at the clearing member's premises but opt fo the webPAM as their order entry front end instead of the PAM, which would be more cost effective than paying rm6000+ for the full PAM.
naturally access fee should be kept to minimum

Bravo OSK, HDM and TA

2005-08-03T23:17:00.000+08:00

Bravo OSK. Of the many stockbroking companies with a futures & ptions broking arm, the osk188.com.my website is the onl one which makes reerence to KLCI futures prices. There is however stil room for improvement as this page is 'secondary' to the main securities page. The main page where the cash indices and for example most active stocks are shown should also display the klci futures price, as the futures are the risk management tool all investors should look at OSK also has real time prices for its subscribers and futures clients. Two other brokers TA and HDM deserve secondary commendation too, as they also have real time prices for the securities and futures customers who use the online trading facilities.

e-BTC proposal is cancelled

2005-07-15T14:40:00.000+08:00

Received a letter from Fahti Ridzuan A Fauzi, Head Exchanges of Bursamalaysia, stating that "...we regret to inform you that, after careful consideration we have determined that the proposal is not feasible. Our decision was based on consultation with the futures industry participants' feedback and proposal analysis established during the period'.

OK, now we have to move on to new issues. One central is to allow remote trading by local participants, by means of telephone, Yahoo or MSN Messenger or internet trading.(which would require the expediation of the open API and brokers developing and implementing internet trading. (straight through processing basis)

Brokers say E-BTC will affect their business

2005-07-12T16:12:00.000+08:00

Some sources say the Futures Brokers Association BA are afraid the e-btc, if implemented will affect their business. I fail to see the logic of this for the following reasons:

The Exchange itself are projecting an increase in activity levels of 20% more volume traded on the FKLI and FCPO products, and with the locals pooled together, information sharing on new products will go towards successful launches.
The rebate scheme for locals at the e-btc are from the exchange fee side only. Brokers who clear the locals would have no impact on revenue, unless of course some astute broker is competitive with attracting local clearing business to reduce fees. With increased volume and liquidity, revenues should only increase, not decrease. Just ask the DBA to look up GETC (Global Exchange Trading Centre and e-Nikkei, TIMSCI) on SGX and see how successful those contracts are with the locals on the GETC supporting trading..

So for the sake of the industry development, we hope the FBA move out of the stone age.

Misconceived view on e-BTC

2005-06-21T16:10:00.000+08:00

The broker member firms obviously do not understand the concept of the e-BTC and what Bursamalaysia wants to achieve with it. These are:

to deepen the pool of liquidity currently, by attracting new locals and reactivating the old local members who are currently out of the market.
to enable BMD to garner support for any new products through easier access to local members so that they can support the product launch and provide liquidity
the grouping of locals are akin to a 'virtual trading floor', which will indirectly leade to more active marketplace

Hope they come to the senses that the initiative is for industry development and support it.

Everything in place e-BTC on verge of reality but....

2005-06-11T10:26:00.000+08:00

The e-BTC is on the verge of coming to reality. This will provide the next launchpad to increasing depth and liquidity in the Bursamalaysia Derivatives products by pooling together 100 locals into a centralised location like the SGX GETC.

Floor plan already drawn up.
Budget is approved.
Exchange officials are raring to GO.but.

BUT..........
We hit a snag. The President of the Futures Broker's Association oppose this. He or she, doesn't realise that local trading are the lifeblood of futures markets evedenced by other exchanges like CME, CBOT or the SGX. Pooling locals in a central location will enhance liquidity and depth in the market for the next step up in the market's journey towards 'The Big Bang' which most futures mrkets experience. Of course Mr(Mrs) President thinks he hs his reasons, including skepticism of the volume increasing. But they are not always right. Cast the mind back to when the FKLI contract was halved in value and the tick size changed. The FBA had wielded its oppression of locals, by only reducing the per contract commission fees by 40% instead of the 50% in line with the notional value change in the contract specifications. Reason was "the FBA do not think thatthe volume will double". Well average daily volume not iw above 3000, which is more than double the old contract average volume. Don't let ego get in the way of progress, Mr(Ms) President.

Work with BMD, and locals to develop the industry. Not bite the hand that feeds you.

e-BTC and web trading still on despite Exchange announcement to sell buildings

2005-05-19T10:30:00.000+08:00

According to exchange sources, the e-BTC and remote facilities for local members are still on track, despite the exchange announcing to sell the buildings, including the annex building behind the main building, which is proposed to house the local e-BTC.

20050411 Discussion on e-BTC

2005-04-13T10:59:00.000+08:00

Evening was productive. Good tucker,!

Commendable, the c-BTC initiative. Though need more nitiative to attract new locals to fill the facility. Sticky issue is the RM20,000 which new local have to pay to purchase the seat. Maybe the exchange can get potential participants to lease from dormant locals.

Got feedback from our group at HLG Futures formerly. Could well have up to 10 takers to fill spots at e-BTC. Some though are very interested in web access.

Discussion on the e-BTC for Local Participants

2005-03-28T10:49:00.000+08:00

Attention local members

Bursamalaysia will hold the following event at the time and place

Event: Discussion on the e-BTC for Local Participants. (electronic Bursa Trading Centre)
Date 11 April 2005
Time 7.00pm (dinner) 7:30 pm discussion
Contact: Ms Cahaya 03 20347611 to confirm your attendance.

Trading centre, need new incentives to attract new local poulation

2005-02-02T14:28:00.000+08:00

Bursamalaysia proposing the new trading centre to attract new liquidity providers is good in principle. However there are a few issues that need to be resolved to ensure the objectives of the trading centre/web access are met successfully

1. Funding: should apply to utilise the Capital Market Development fund, to develop the derivatives market, which is an integral part of any capital market.

2 Need to make it easier for new locals to enter AND exit the market. Currently there are 96 local seats, which the respectives local paid RM20,000. There is no market for these seats. The locals are stuck with a liability of RM1,200 per annum (if they do not trade or were knocked out) No new entrant will enter into this situation where there is no exit., in the situation where they do not make it in trading.

Maybe the exchange should consider the SGX, considering the trading centre will be modelled on SGX GETC. SGX locals, on demutualisation were given shares in exchange for their seat. At present local members of SGX pay the following to trade as locals:

SGD100 per annum membership fee
SGD100/month for trading permit to trade as locals
SGD250 for the workstation
SGD250 for booth at GETC

Note also that for first 6 months essentially new locals have waiver from many of the fees, essentially no fixed cost. This allows them to concentrate to trade for success, to help them get a feel for the trading for a living.

3 Very low transaction fees: SGX locals are given priveledge of world class local transaction fees. For example to trade a Nikkei 225 futures contract, locals pay a round trip fee of 150 Yen, with the tick value of 2,500 Yen, this provides very attractive incentive to trade on SGX as locals. For the SIMSCI, SGX locals' commission charged is around SGD1.20, SIMSCI has tick value of SGD20. If translated into the flagship contracts FKLI and FCPO, with tick value of RM25, locals on Bursamalaysia should then pay RT commissions of RM1.50, along with scratch trades. In this way, the exchange and brokers can do away with the 'spread trade' concessions afforded to cpo locals, since commissions are so low anyway.

4 Tax benefits. Currently the exchange has to apply to the IRB for the 70% rebate afforded local traders. This creates uncertainty to new locals, as they would be doubts as to whether this scheme would renew in the future. The exchange should apply to the IRB to make permanent the tax rebate for local trading income. In addition currently there is no provision for carry forward of tax losses, which is another disincentive. Possibly the exchange could make recommendation to give additional tax rebate in addition to the current 70%, to compensate for the no carry forward losses ruling.

5 Web access. Availability of which will further attract new locals into the market. Think of the locals outside the major cities who could contemplate a career in trading. Must stress aso that locals should also be granted this avenue of order entry, in addition to locals at clearing member premises or the exchange trading centre. Technology can streamline business processes and cut down costs and should be utilised to the fullest.

The exchange should view locals as business partners, as liquidity providers, of less importance as a revenue centre. The local function is an integral and very important part in the futures market price discovery mechanism, by providing additional liquidity to exchange traded futures markets. The measures listed above will go a long way to ensuring a vibrant and active ocal population, the success of the proposed trading centre.

Posting

2005-01-29T18:04:00.000+08:00

To add comments just click 'comments' in the post below

Bursamalaysia initiatives: Trading centre/Web Access

2005-01-29T17:52:00.000+08:00

Bursamalaysia sent out some survey forms to assess the viability of housing Local Participants at a centralised location at the Exchange premises. In addition, there is a move to allow Local Participants to trade remotely through Web PAM via internet.

This blog should allow Locals to add views, make comments (constructive please), air views in support (or not) of the iniatives. Please make this a productive forum so that the industry can grow and move forward.