Bursa Malaysia Derivatives Launches Revamped Options On Index Futures

Bursa Malaysia Derivatives Berhad (BMD) has launched a revamped options contract based on Malaysia’s composite index futures (FKLI) to complement the index futures market and to provide traders with more hedging, arbitraging and trading choices.

Trading of the options contract (OKLI) commenced on 21 May 2012, with a total of 27 options contracts traded (15 call and 12 put options contracts traded).

Dato’ Tajuddin Atan, Chief Executive Officer of Bursa Malaysia and Chairman of Bursa Malaysia Derivatives said, “In line with the growing sophistication of the local derivatives market, we are re-introducing the OKLI to capitalise on the significant growth of the equity index options market in Asia Pacific.”

“Options are highly versatile instruments that provide flexibility for various trading strategies, and can offer trading opportunities even during non-volatile market conditions. We expect increased volume from the new trading activities as options can be actively used to complement investments in the futures and the equity market.”

The original OKLI, launched in December 2000, was the first exchange-traded options contract in Malaysia and used the FBM KLCI cash index as its underlying instrument. The underlying instrument was replaced with the FBM KLCI futures (FKLI) in order to facilitate more efficient hedging with futures. The revamped OKLI is listed and traded on the CME Globex electronic trading platform as part of the partnership with CME Group.

Bursa Malaysia has embarked on awareness and educational programmes to highlight the benefits of options trading and its opportunities to market participants and members of the public.

Underlying	FBM KLCI Futures (FKLI)
Type	European Style
Contract Size	One FKLI contract
Tick Size	0.1 index point valued at RM5
Contract Month	Spot month, the next month and the next two calendar quarterly months. The calendar quarterly months are March, June, September and December.
Trading Hours	First trading session: Malaysian 8:45 a.m. to 12:45 p.m. Second trading session: Malaysian 2:30 p.m. to 5:15 p.m.
Last Trading Day	The last market day of the contract month.
Exercise Price Interval	At least 13 exercise prices (6 are in-the-money, 1 is at-the-money and 6 are out-of-the-money) shall be set at interval of 10 index points for the spot and next month contracts. At least 7 exercise prices (3 are in-the-money, 1 is at-the-money and 3 are out-of-the-money) shall be set at interval of 20 index points for the next 2 quarterly month contracts.
Settlement of Option Exercise	In the absence of contrary instructions delivered to the Clearing House, an option that is in-the money at expiration shall be automatically exercised. Exercise results in a long FKLI position, which corresponds with the option’s contract month for a call buyer or a put seller, and a short FKLI position for a put buyer or a call seller. The resultant positions in FKLI shall then be cash-settled based on the final settlement value of FKLI.
Speculative Position Limit	10,000 FKLI-equivalent contracts (a combination of OKLI and FKLI contract), net on the same side of the market in all contract months combined.