Bursa M'sia Derivatives boosts MGS products’ appeal, flexibility

Bursa Malaysia HQ

KUALA LUMPUR: Bursa Malaysia Derivatives (BMD) has enhanced the three-year, five-year and 10-year Malaysian Government Securities (MGS) futures products (FMG3, FMG5 and FMGA, respectively).

In a statement, the Bursa Malaysia Bhd subsidiary said the enhancements were aimed at creating a “Malaysian Sovereign Bond Futures Curve”, which serves as a benchmark for local and foreign investors to estimate the impending interest rates while managing their physical cash MGS exposures.

These enhancements covered three areas.

Firstly, the close of trading time for FMG3 and FMGA has been extended from 5.00pm to 6.00pm to synchronise with Bursa Malaysia’s Electronic Trading Platform (ETP) operation time and to standardise with FMG5. The final trading time, which is currently the third Wednesday of the contract month at 11.00am, is also now extended to 6.00pm on the third Wednesday of the contract month.
 
BMD said the final settlement price was now largely derived from the volume weighted average prices (VWAP) mechanism of actual cash MGS transactions in the market trades reported in the ETP on the final trading day.

Previously, the final settlement price for FGM3 and FMGA was based on Reuters’ settlement methodology based on submission of the indicative prices of related bonds in the basket.

BMD said eligibility within the basket of bonds had been widened for FMG3 and FMGA. The maturity range for FMG3, previously 2½ to 3½ years, has been increased to two to four years while FMGA’s, formerly ranging from eight to 10 years, is now from eight to 11 years.

The new eligible basket for MGS Futures, including FMG5, will consist of the benchmark bond and a maximum of two most liquid non-benchmark bonds.

BMD chairman and chief executive officer Datuk Seri Tajuddin Atan said: “The enhancements of FMG3 and FMGA are intended to make the products more appealing to investors and hedgers which were only available for FMG5 before. In addition, the extended trading hours offer greater flexibility to traders to seize any opportunistic market movements.”

Almost 50% of the MGS contracts are foreign holdings.

BMD made the changes after industry consultation and approval from the Securities Commission in July. FMG3, FMG5 and FMGA falls within the financial product category.