28/11/2012 (The Sun) - Bursa Malaysia will introduce a new methodology in calculating the daily settlement price for palm oil futures contracts from Dec 3, the exchange operator said in a circular seen by Reuters on Tuesday, in a bid to reduce volatility.

Bursa Malaysia Derivatives Clearing will use the volume weighted average price of trades executed in the last one minute before the market closes at 6pm as the daily settlement price for active contract months, the circular showed.

Active contract months refer to contracts that are traded in the final minute before the market closes.

Under the new methodology, there will also be a removal of bid and ask prices consideration in the final minute for these contracts.

Currently Bursa Malaysia uses the last traded price as settlement.

"The change is requested by the brokers after a consultation with them," said an official with the exchange operator who declined to be named as he is not authorised to speak to the media.

"The reason given by them is that the weighted average is a fairer methodology than the last traded price as a settlement price," he added.

The new move by Bursa Malaysia could also prevent distorted closing price, traders said.

"The new methodology prevents last seconds selling up or down in order to move the closing price," said a dealer with a foreign commodities brokerage in Malaysia. – Reuters