Market professionals, including officials at Deutsche Bank and HSBC, expect the interest-rate derivatives market in Malaysia to bloom in the coming months, on the back of the Malaysia Derivatives Exchange listing bond futures at the end of March. "This has the potential to double the swap market," noted an official at Deutsche Bank. He noted that average monthly trading volumes now range from USD25-50 million.
"We all hope the bond futures will give interest-rate derivatives a boost," said Hong Aik Sai, treasurer at HSBC in Kuala Lumpur. He continued that bond futures will allow traders to hedge their interest-rate swap positions. "This will boost liquidity," Hong added. The underlying instrument for the futures contract is the five-year Malaysia Government Security.
Lee K. Kwan, head of debt markets and derivatives at CIMB Group, Malaysia's largest investment bank, concurred: "It's a positive. There will be a lot more avenues for more efficient hedges." He continued that Malaysia is a "one-sided market", whereby there is strong demand on the liability side for interest-rate products while demand for the asset side is still in a nascent stage. Lee continued that with the launch of bond futures which will result in increased liquidity, demand from the asset side should grow.
Mohamad Azam Ali, v.p. of public affairs at the Kuala Lumpur Stock Exchange, the parent company of the Malaysia Derivatives Exchange, confirmed that the product will be listed on the MDEX at the end of the month.
