Executive Chairman of MDEX, Encik Abdul Jabbar Abdul Majid said the encouraging response to the contract augurs well for the future of the contract.
"This is an excellent start for all of us. The strong support from market participants is also testimony to the timely introduction and capability of the FMG5 to fully meet market requirements for a hedging instrument on the debt market.
"With continued support, MDEX certainly looks forward to the sustained interest in the FMG5 to contribute to an actively trading market," he said.
Malaysian Government Securities (MGS) are medium to long-term borrowings by the government for financing long-term developmental projects. MGS are issued and managed by Bank Negara Malaysia on behalf of the Government of Malaysia. MGS are considered gilt-edged securities, issued via auction and subscription with interest payable semi-annually.
FMG5 is a cash settled futures contract to buy or sell the Five-Year Malaysian Government Securities at a future date. Eligible MGS must meet the specifications of the contract. Among the specifications are that they must mature between 4 ½ to 5 ½ years, with a minimum issuance size of RM500 million. Upon maturity of FMG5 contracts, the buyer and seller will settle using the final settlement value.
FMG5 provides expanded opportunities for risk management and hedging for market participants, especially in dealing with movements of interest rates. The uses and benefits of participating in FMG5 are applicable to a very wide range of the financial market segment including financial institutions, insurance companies, bond portfolio managers, provident funds, asset managers, corporate treasurers, individual investors, as well as MDEX local members.
FMG5 is also a hedging instrument which also serves as a pricing benchmark and a price discovery tool for institutional participants of the Malaysian ringgit bond market with medium to long-term interest rate exposures.
"The success of the FMG5 is also contributed by the support and commitment of market makers especially Standard Chartered Bank, Citibank, CIMB, RHB and Arab-Malaysian Merchant Bank.
"We are confident that market makers will continue to be actively involved in the FMG5 to ensure its continued success," Abdul Jabbar said.
Besides the FMG5, other products currently traded on MDEX are Kuala Lumpur Stock Exchange Composite Index Futures (FKLI), Kuala Lumpur Stock Exchange Composite Index Options (OKLI), Crude Palm Oil Futures (FCPO) and Three-month KLIBOR Futures (FKB3). These products are traded electronically through KATS (an automated trading system) in an efficient and secure manner.
