systematic risk
Risk which cannot be avoided however much one diversifies .
systematic risk
Risk which cannot be avoided however much one diversifies .
Limit Up
The maximum amount by which the price of a commodity futures contract may advance in one trading day.
Limit Down
The maximum amount by which the price of a commodity futures contract may decline in one trading day.
Some markets close trading of contracts when the limit down is reached; others allow trading to resume if the price moves away from the day’s limit. If there is a major event affecting the market’s sentiment towards a particular commodity, it may take several trading days before the contract price fully reflects this change: on each trading day, the trading limit will be reached before the market’s equilibrium contract price is met.
By Surin Murugiah
Bursa Malaysia Derivatives Exchange aims to increase the volume traded on the derivatives market by 40% this year by reducing most of its fees and changing the crude palm oil (CPO) futures contract specifications.
Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff said the new fees would take effect from April 1 and cover the Kuala Lumpur Composite Index (KLCI) futures contracts, CPO futures and financial derivatives futures products.
He said the exchange and clearing fee for KLCI futures contracts would be reduced to RM5 from RM6. The fee for CPO futures would be reduced to RM3 from RM4 while the fee for financial derivatives futures products would be lowered to RM1 from RM3.
Speaking at the exchange’s annual palm oil conference in Kuala Lumpur on March 14, he said Bursa Malaysia was introducing an incentive scheme for locals and brokers for proprietary trades.
The exchange and clearing fee for financial derivatives, day trades and spread trades will be reduced to 50 sen from RM1.50 per trade.
The revised specifications for CPO futures contracts will take effect tomorrow. The changes involve increasing the futures contracts to 24 months with the introduction of six alternate month contracts.
Until now, CPO futures for trading is spot, the next five succeeding months and thereafter, alternate months up to 12 months forward.
Yusli said while the spot month position limit for CPO futures was unchanged, for the other months it would be increased from 3,000 contracts to 5,000 contracts. The position for all months combined will be increased to 8,000 contracts.
On the price limit for CPO futures, it would be changed from static to a dynamically managed one, in line with movement in market prices.
Currently, the limit per day for all non-spot contracts is a plus or minus RM100. Under the proposed changes, it will be a plus or minus 10%.
When at least three non-spot contracts are trading at limit, a 10-minute cooling-off period would apply, followed by a five-minute market interruption after which the price limit will be expanded to plus or minus 15%.
“Our CPO futures is currently a global pricing benchmark for crude palm oil futures. However, global competition in this sector is increasing alongside demand for the commodity making it essential for us to ensure that our CPO futures remains relevant to evolving market needs,†he said.
Yusli said derivatives contribute 12% to the exchange’s revenue while CPO futures make up 57% of its volume. Volume surged to 2.23 million contracts at end-2006 from 480,000 contracts in 2001.
“The revised contract specifications provide greater trading flexibility and increase our CPO futures’ efficiency, making it a more competitive contract,†he said.
On the US dollar trade for CPO futures, he said Bursa was looking to launch it in the second half of 2007 and targeting at foreign investors.
“We live in a global environment. Everyone is doing multi-currency trading; we need to move on,†he said, adding that Bursa was looking at working with banks and brokers to handle the settlement in US dollars.