“The partnership will increase the prominence of BMD’s existing derivatives products globally, while allowing Bursa to leverage on the strength and expertise of CME, a global market leader,” Bursa chief executive officer Datuk Yusli Mohamed Yusoff said.

In a media briefing here yesterday, Yusli said CME (Chicago Mercantile Exchange), the world’s largest derivatives exchange, would pay for the stake in BMD with RM1.9 million cash and 76,427 of its own shares, adding Bursa would make a “paper gain” of RM44 million from its divestment of the stake, based on its initial investment cost of RM10.57 million.

Bursa’s 76,427 shareholding of CME, would however, be equivalent to less than a 1% stake, Yusli said.

The equity investment exchange is part of a three-pronged collaboration, which would also include CME providing its CME Globex electronic trading platform to BMD and the listing of existing and future BMD products on the platform.

BMD would also license to CME the right to use the settlement prices of its ringgit-denominated CPO futures contract, which would enable CME to develop a US dollar-denominated cash-settled CPO futures contract and related options for listing on one of CME’s US-designated exchanges. These would in turn be traded on CME Globex.

Yusli said trading of BMD products on Globex was expected to commence in the second half of next year, while CME and Bursa’s equity participation deal would likely be completed by year-end.

He said the collaboration with CME was expected to fulfil Bursa’s strategic intent of globalising Malaysian CPO, further developing the Malaysian derivatives industry and to internationalise Bursa.

He also said the partnership could boost revenue contributions of its derivatives business to 30% in about three years, from around 15% currently, as it targeted to double derivatives trading volume within the same period. The exchange saw an average of 26,000 contracts traded daily from the beginning of this year to August.

CME Group MD of alliance and venture management, David Shuler, added that last year, US$1.4 quadrillion (RM4.9 quadrillion) in notional value of derivatives contracts had been traded on the CME.

Meanwhile, on why the CME Group had chosen Bursa as its partner, CME Group MD for Asia, Wong Chong Fatt said as the group saw growth for the futures market shifting from the US to Asia, it wanted to do its part in adding value to the Asian market.

He added rather than competing with stock exchanges in Asia, the group looked instead to form strategic partnerships, as it sought it widen its presence here.

He also said CME could channel the huge amount of wealth accumulated in Asia into investments outside the region, while facilitating US and European investments into the region.

Meanwhile, Bursa chief operating officer Omar Merican said to facilitate CME’s equity investment, Bursa would undertake a restructuring exercise, consolidating all its derivatives businesses in BMD and its subsidiaries.

He said as part of this, BMD would acquire the entire stake of Bursa Malaysia Derivatives Clearing Bhd from Bursa for RM37.1 million cash.

This article appeared in The Edge Financial Daily, September 18, 2009.