Bursa, Dalian exchange in landmark soybean oil futures settlement price deal
02.11.2023 (The Sun Daily) - PETALING JAYA: Bursa Malaysia Derivatives Bhd and Dalian Commodity Exchange (DCE) have signed an agreement for the licensing of Soybean Oil Futures settlement price, marking this the first product collaboration between a Chinese derivatives exchange and an Asian exchange based outside of China.
The licensing agreement was signed at the 17th China International Oils and Oilseeds Conference (CIOC) held today at Shangri-La Hotel, Dalian, China. The CIOC is a landmark event in the global oils and oilseeds industry that is jointly organised by DCE and Bursa Malaysia Derivatives. The settlement price licensing agreement was signed by Bursa Malaysia Derivatives chairman and Bursa Malaysia Bhd CEO Datuk Muhamad Umar Swift, and DCE CEO Yan Shaoming.
Under the agreement, DCE has authorised Bursa Malaysia Derivatives to use the settlement price of DCE Soybean Oil Futures as the basis to calculate the cash settlement price of its upcoming new product – the Bursa Malaysia DCE Soybean Oil Futures Contract (FSOY).
With that, the underlying asset of the FSOY contract will mirror that of the DCE Soybean Oil Futures. The product is targeted to be launched by Bursa Malaysia in the first quarter of 2024, subject to regulatory approval.
The latest collaboration between Bursa Malaysia Derivatives and DCE marks a historic milestone in the development of the Asian derivatives market. It represents the first instance of a Chinese derivatives exchange authorising an Asian exchange to incorporate Chinese commodity futures settlement prices into their product offering.
Simultaneously, adopting foreign commodity futures prices as the basis for calculating cash settlement prices not only sets a precedent for the Malaysian futures market but also leverages the proven success of the DCE Soybean Oil Futures Contract.
The Soybean Oil Futures launched by DCE in 2006 is widely used as a price reference for China’s spot soybean oil trades, while their institutional market participants are industry players who account for 90% of the soybean crushing volume in China.
Meanwhile, Bursa Malaysia Derivatives offers the world’s most liquid Crude Palm Oil Futures Contract and is established as the global centre for crude palm oil price discovery.
Thus, the introduction of the FSOY will leverage the strengths of both exchanges to offer market players arbitrage opportunities between soybean oil and palm oil, which are common substitutes. FSOY will provide international traders with an alternative avenue to access Chinese soybean oil price, with the convenience to trade both commodities on the same exchange (Bursa Malaysia Derivatives), enabling cross-margining and capital efficiencies.
A DCE spokesman said, “Since the signing of the memorandum of understanding with Bursa Malaysia Bhd (the holding company of Bursa Malaysia Derivatives) in 2006, the collaboration between DCE and Bursa Malaysia Derivatives (BMD) has grown from strength-to-strength. In recent years, DCE has been proactively and systematically moving towards internationalisation under the guidance of the China Securities Regulatory Commission. The cooperation with BMD marks a pivotal opportunity for both exchanges to share business practices and innovative ideas, thereby enhancing the connectivity of both our markets. Through this cooperation, we aim to better serve the international oil and fats industry, facilitate bilateral trade, and contribute collectively to the Belt and Road Initiative to achieve mutual benefit and success.”
Muhamad Umar said, “As the leading commodity derivatives marketplace in Asean, Bursa Malaysia Derivatives continually develops products to help market participants navigate the complexities of international markets and discover trading opportunities. Through this cooperation, we are proud to offer an innovative solution that simplifies market access and empowers industry players to effectively manage cross-market risks.”
In 2022, 1.8 billion metric tonnes of soybean oil was traded via the DCE Soybean Oil Futures, indicating global industry recognition of the market’s strong liquidity and price representation.