8/6/06 (Business Times) -  BURSA Malaysia has defended its plan to license out daily settlement prices for crude palm oil (CPO), saying it will make Malaysia the global pricing centre for its golden crop.

The plan has received opposition from some local traders on concern that their business will move offshore. It is understood that 15 brokerage houses have written to the Finance Ministry to oppose the move.

Bursa Malaysia head of global markets Raghbir Singh Bhart maintains that Malaysia now has the chance to set the global pricing benchmark for palm oil.

“Licensing is also to brand Malaysia’s CPO prices at a global level and preserve national interest,” Raghbir told Business Times yesterday.

He said if Malaysia did not take this step, other interested exchanges around the world will turn to the next logical destination and closest CPO rival, Indonesia.

Raghbir said Malaysia will not lose its sovereignty by giving out licences to the Joint Asian Derivatives Exchange (Jade), Dalian Commodity Exchange of China and Multi Commodity Exchange of India.

“Business will not migrate to Singapore or the other countries because foreign retail makes up 20 per cent of CPO futures average daily trading activities.

“And the remaining 80 per cent of the volume is done here at home supported by palm oil installations owned by companies such as IOI Corp Bhd, Golden Hope Plantations Bhd and Kuala Lumpur Kepong Bhd. So we have home advantage,” he added.

Raghbir said the futures contracts done outside of Malaysia will be balanced out via arbitrage activities carried out by traders.

He added that licensing is a step forward in Bursa Malaysia’s plans to go global and forge strategic alliances with other exchanges.

“It is not the products that drive exchanges but it is the technology and we should emulate that,” said Raghbir. For example, Singapore’s SGX has alliances with the Australian Stock Exchange, Jade and the Chicago Mercantile Exchange.

Bursa Malaysia’s CPO futures were first introduced in 1980 and today sees an average of 5,000 lots being transacted a day.

Raghbir said the licensing plan had been approved by Bursa Malaysia’s directors, is supported by oil palm industry players, and a signing ceremony will be held soon.

Malaysia was once the largest producer of natural rubber and tin, but their prices are now determined by traders as far away as those at the Tokyo Commodity Exchange and the London Metal Exchange.

Raghbir said the same could happen to CPO if Malaysia did not take control of settlement prices.

As it is, palm oil prices are already dictated by the Hamburg-based Oil World magazine and locally-based foreign cargo surveyors.

The copyrights to CPO’s daily settlement prices such as at RM1,500 a tonne is owned by Bursa Malaysia and foreign exchanges must obtain Bursa Malaysia’s approval before their own domestic traders can trade CPO futures.