Bursa to Gain from CME Group Partnership

KUALA LUMPUR: The collaboration between Bursa Malaysia Bhd and CME Group Inc will see the latter buying a 25% stake in Bursa Malaysia Derivatives for RM55mil.

The acquisition would be satisified via RM2mil cash and the balance in CME shares, which would make Bursa a “small shareholder” in the world’s biggest derivatives marketplace, said Bursa chief executive officer Datuk Yusli Mohamed Yusoff at a press conference yesterday to announce the signing of the agreements. CME’s market capitalisation is about US$20bil.

The divestment of the 25% stake would give Bursa a gain on investment of about RM44mil.

The two other partnerships with CME Group involve licensing of the Bursa Malaysia Derivatives Bhd crude palm oil futures (FCPO) settlement price and the provision of CME Globex services, which is the eletronic trading platform.

The licence agreement allows development of the US dollar-denominated cash-settlement CPO futures contracts and related options for listing on one of CME Group’s US designated exchanges.

The listing of CME’s US dollar-denominated CPO futures contract is likely to begin in the first half of 2010. The current existing and future Bursa Malaysia Derivatives’ products would be transferred for listing on CME Globex by the second half of next year, Yusli said.

“CME Group has about a million terminals worldwide while we have about 600 in Malaysia,” he said, adding that revenue contribution from derivatives to Bursa was anticipated to double within three years from 15% currently.

He also expects trading volume in Malaysia’s derivatives market to improve following this, given the tie-up with CME would give exposure to its existing clients.

Bursa chief operating officer Omar Merican said the derivatives market’s daily average trading volume was anticipated to double in three to five years from 26,000 contracts currently, while the profile of CPO as the price benchmark for international edible oils would be enhanced.

CME Group managing director of Asia Wong Chong Fatt said the partnership would provide its customers access to the commodity as well as help CME expand its products and services in Asia.

Prior to the acquisition, a restructuring exercise would be undertaken to consolidate all the derivatives businesses into Bursa Malaysia Derivatives. The proposed equity participation by CME Group is likely to be completed by the fourth quarter of 2009.

CME Group exchanges offer the widest range of global benchmark products across all major asset classes including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate.

About 12 million contracts are traded daily on CME exchanges, of which over 80% of daily volume trading is on the CME Globex platform.

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