PETALING JAYA: Bursa Malaysia Derivatives has relaunched the five-year Malaysian Government Bond (MGS) securities futures contract with a revised settlement methodology, from the previous cash-settled to physical delivery.
It explained that the revised methodology is based on a delivery-versus-payment (DVP) model which closely mirrors the DVP transfer of MGS in the over-the-counter market.
The bourse explained that a key modification to the model is Bursa Malaysia Derivatives Clearing’s role of the central counterparty to facilitate the real-time delivery of the MGS.
It stated that the transitions will be facilitated via the Securities Linked Settlement functionality of Real-Time Electronic Transfer of Funds and Securities System provided by Payments Network Malaysia Sdn Bhd.
Bursa Malaysia Derivatives chairman and Bursa Malaysia CEO Datuk Umar Swift said it has worked closely with key market stakeholders to create the optimal and efficient physical delivery model for MGS futures, taking into consideration settlement efficiency risk and transparency to regulators.
“Several industry consultations and focus group sessions were conducted before the final model was confirmed and duly approved by the Securities Commission Malaysia,” he said in a statement today.
“For industry players, the change in the settlement method is a crucial modification to enhance the appeal of the FMG5 Contract as an effective hedging instrument for their MGS holdings and has attracted some to be market makers, ensuring liquidity in the product with two-way quotes.”
Swift also pointed out the enhanced delivery mechanism is also in line with the Financial Markets Committee’s development initiatives aimed at improving market accessibility and liquidity in the domestic financial market.
