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Bursa Malaysia Derivatives Berhad (“BMD”) crossed another milestone with the successful completion of the first physical delivery of the 5-Year Malaysian Government Securities (“MGS”) Futures Contract (“FMG5”). This follows the re-launch of FMG5 on 18 September 2020 with a revised settlement methodology from cash to physical delivery.
The delivery of the MGS, amounting to RM11 million in principal value from the seller to the assigned buyer of FMG5, was done via a Delivery vs Payment (“DvP”) model on the RENTAS system. The Securities Linked Settlement (“SLS”) functionality available on RENTAS was utilised for the first time. It enabled Bursa Malaysia Derivatives Clearing Berhad to act as the central counterparty to facilitate the exchange of MGS and cash payment. This is also the first tripartite DvP transaction involving a buyer, seller and central counterparty whereas other DvPs on RENTAS only involves two parties.
“We are pleased with the successful and orderly completion of the first physical delivery for the MGS futures offerings. It demonstrates the efficiency of the delivery mechanism of MGS put in place by the exchange and the clearing arm,” said Datuk Muhamad Umar Swift, Chairman of BMD and Chief Executive Officer of Bursa Malaysia Berhad. “The change in the settlement method is a crucial modification that enhances the appeal of FMG5 as an effective hedging instrument for their MGS holdings.”
The enhanced delivery mechanism, which is in line with the Financial Markets Committee’s (FMC) development initiatives is a clear improvement towards the market’s accessibility and liquidity of the domestic financial market. Market participants will substantially benefit from this orderly and transparent onshore market.
“We hope the facility of the seamless delivery mechanism will enable the emergence of a strong market-based facility for risk management and price discovery in the MGS market,” concluded Datuk Umar.
Since the re-launch of FMG5, the cumulative value traded stands at RM30 million as of 1 December 2020.
