KUALA LUMPUR: Bursa Malaysia Derivatives Bhd will launch its first currency futures contract, the Mini USD/CNH Futures (FCNH) through a licensing agreement with Hong Kong Exchanges and Clearing (HKEX).
The launch on Dec 11 is a big step forward for the capital market as it will be the country's inaugural exchange-traded currency futures contract, complementing existing currency markets operated by the local financial institutions.
An exchange-traded currency futures contract can help mitigate counterparty credit risks, as well as provide a transparent, regulated and easily accessible marketplace.
Bursa Malaysia Derivatives chairman and Bursa Malaysia chief executive officer Datuk Muhamad Umar Swift said FCNH is timely given the current volatility in global markets, which has led to increasing demand among market participants and businesses to manage their foreign currency exchange exposure.
"Our licensing agreement with HKEX for FCNH and product collaboration with DCE are testaments to Bursa Malaysia Derivatives' commitment to forging strategic alliances and deepening global market connections.
"We are optimistic that these efforts will enable market participants to effectively navigate the complexities of international markets and adeptly manage cross-market risks," he noted.
HKEX group head of emerging business and FIC Glenda So said at HKEX, building a suite of renminbi-related investment and risk management products forms a key part of its strategy.
He said the company is keen to support its partners with the development of a broader renminbi and fixed-income product ecosystem in the region and beyond, connecting capital with opportunities.
With the introduction of the new asset class within Bursa Malaysia Derivatives' offerings, traders will be presented with enhanced trading opportunities and arbitrage possibilities across the derivatives markets of Hong Kong and Malaysia.
Designed as a smaller-sized, cash-settled contract, FCNH offers investors a capital-efficient way to achieve renminbi currency hedging over their investment holdings since it does not require investors to exchange the initial sum invested.
This will be useful for participants, such as small to medium enterprises (SMEs) and business owners with transactions in China, to hedge their risks on fluctuations in the US dollar and offshore renminbi.
According to Bursa Malaysia, the plan to launch FCNH is strategic and in line with the exchange's recent signing of a licensing agreement with Dalian Commodity Exchange (DCE) on the soybean oil futures settlement price for the Bursa Malaysia DCE Soybean Oil Futures Contract (FSOY), a new product to be listed on Bursa Malaysia Derivatives in 2024.
FCNH will be complementary and serve as a currency hedging tool for market participants interested in trading FSOY, which will be denominated in US dollar.
FCNH is a cash-settled contract denominated in renminbi.
The final settlement price refers to HKEX's mini-US dollar/renminbi final settlement price.
