Bursa Malaysia Derivatives Re-launches the 5-year Malaysian Government Securities Futures Contract

Bursa Malaysia Derivatives (BMD) has announced that it has  successfully re-launched the 5-Year Malaysian Government Securities (MGS) Futures contract (FMG5) with a revised settlement methodology.

The FMG5 Contract's settlement, which was previously cash-settled, is now physically delivered, BMD said in a press release.

The revised methodology is based on a delivery-versus-payment (DVP) model which closely mirrors the DVP transfer of MGS in the over-the-counter market. The key modification is that Bursa Malaysia Derivatives Clearing Berhad will play the role of the central counterparty to facilitate the real-time delivery of the MGS. The DVP transaction is facilitated via the Securities Linked Settlement (SLS) functionality of Real-Time Electronic Transfer of Funds and Securities System (RENTAS) provided by Payments Network Malaysia Sdn Bhd (PayNet), the press release reports.

Datuk Umar Swift, Chairman, BMD, and Chief Executive Officer, Bursa Malaysia Berhad, said: “BMD has been closely working with key market stakeholders to create the optimal and efficient physical delivery model for MGS futures, taking into consideration settlement efficiency risk and transparency to regulators. Several industry consultations and focus group sessions were conducted before the final model was confirmed and duly approved by the Securities Commission Malaysia (SC).”

“For industry players, the change in the settlement method is a crucial modification to enhance the appeal of the FMG5 Contract as an effective hedging instrument for their MGS holdings and has attracted some to be market makers, ensuring liquidity in the product with two-way quotes. This enhanced delivery mechanism is also in line with the Financial Markets Committee's (FMC) development initiatives aimed at improving market accessibility and liquidity in the domestic financial market, whilst preserving an orderly and transparent onshore financial market,” he continued.

“Bursa Malaysia will continue to collaborate with the FMC, SC and Bank Negara Malaysia in market development initiatives to elevate and enhance liquidity and accessibility in the Malaysian financial market,” he concluded.