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3.1.4 EXPANDING RISK INTERMEDIATION
A. BROADEN MARKET PARTICIPATION FOR GREATER MARKET DYNAMISM
Against the backdrop of global growth in commodities trading, foreign participation in exchange-traded FCPO has increased, with greater trading activities from non-traditional participants such as commodity funds and algo traders. As the global benchmark for crude palm oil (CPO) price, Malaysia continues to be the destination for most players to hedge against CPO price movements. Against the backdrop of greater competition from global derivatives markets, it is imperative that Malaysia remains competitive.
Global participants who demand greater trading speed and more efficient costs are increasingly looking for direct access to exchange-traded commodities, including FCPO. To cater to this, the SC will explore a framework to enable remote membership of the Malaysian derivatives market, starting with the trading participants. This will facilitate a broader range of global players licensed in identified jurisdictions, including liquidity providers, to have direct access to the derivatives market without the need for costly interbroker relationships and heavy capital outlay to set up operations in Malaysia.
Along with the expansion of foreign participation, there is also a need to diversify the local intermediation landscape to better enable investors to hedge or participate in the derivatives market. In addition to banks, the onshore presence of specialised interbroker-dealers can provide local corporates or investment institutions, who currently lack hedging familiarity or capabilities, with customised or hybrid hedging solutions that encompass both OTC and exchange-traded derivatives. Besides this, services such as discretionary futures trading can enable more investors to gain exposure to the derivatives market through brokers with the necessary expertise. Such services stand to benefit from the enhanced discretionary trading framework, which has been operationalised in 2021.
With greater investor sophistication in the derivatives market, there may be growth in other specialised services along the derivatives trading value chain, enabled by technology. This includes non-traditional data and analytics service providers, algo-based brokers, proprietary traders as well as digital services which automate back-office operations. In this regard, the SC will also embark on developing the talent pipeline to support the growth of the intermediation landscape. This includes facilitating training or development programmes and partnerships, including with the community of local trading participants (Locals).
Along with the intermediation landscape, marketplaces too are evolving. To keep up with investor demand for trading speed and efficiency, derivatives exchanges globally have invested in technology to enable 24-hour trading, digitise post-trade processes and more. Similarly, alternative marketplaces with niche technology or product propositions have emerged, and OTC derivatives markets have seen greater ‘electronification’, transparency and competitiveness. In this respect, the SC will continue to engage the industry to explore growth opportunities in the local marketplaces and attract a diverse range of market participants to enable a more vibrant derivatives market.
CAPITAL MARKET MASTERPLAN 3
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