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Derivatives

OTC Plays Anticipated On Malaysian Index

Equity houses are expecting interest for derivatives linked to a new Malaysian index.

Equity houses are expecting interest for derivatives linked to a new Malaysian index. Last week, the FTSE Bursa Malaysia 100 index was launched and some houses anticipate it will become a benchmark, perhaps by next year. "The new index has a free-float adjustment and uses the most liquid stocks--it better represents the market than the [existing] Kuala Lumpur Composite Index," said Sandy Lee, quantitative analyst at Nomura International in Hong Kong.

"We expect to see ETFs, listed derivatives and OTC products referenced to the index," Lee said, noting for instance structured notes will likely emerge for investors looking for exposure to Malaysian equities. She continued that as the FTSE Bursa Malaysia index comprises the most liquid stocks, rather than just a broad spectrum of names as the KLCI, it will be an easier underlying for derivative contracts.

Other equity officials noted, however, it may take some time for the market to accept the index. "The KLCI is already pretty established and it can be hard for people to adopt new indices," said an equity head at a bulge bracket house.

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