1. MAF 630 -Group Project- (Derivatives In Malaysia, Prospect & Challenging) Prepared by : 1)Hazima Binti Mohd Saad 2009852156 2)Mariamah Binti Abdul Rashid 2009280838 3)Norhasma Binti Mahmud 2009490684 4)Nor hanim Binti Abdul Aziz 2009218964 Prepared for : En.Hafizi Ab Majid

2. Distributor Sales Review | May Introduction F The word “Derivatives “ implies they derive their value from something F A derivatives on its own has little value : its derive its value from another asset its can be share price price of commodity F For e.g. : a derivatives or AirAsia Share – value from the share price Derivatives Instruments F Simply financial instruments which have value determined by prices of the underlying assets. F A derivatives has little value. Its values is entirely dependent on the value of the underlying asset. F For example : hold a corn futures contract (derivatives, the value of the contract will rise and fall as the value of corn. Unlike the corn market transactions where the corn is bought or sold for cash and prevailing price for immediate delivery, derivatives transaction are transaction at some point in the future at price determined today. Objectives To increase his personal ware but with minimal risks. Derivatives are instruments to create minimize risks. Introduction To Derivatives Hazima, Mariamah, Norhasma & Norhanim

3. Distributor Sales Review | May Introduction F The word “Derivatives “ implies they derive their value from something F A derivatives on its own has little value : its derive its value from another asset its can be share price price of commodity F For e.g. : a derivatives or AirAsia Share – value from the share price Derivatives Instruments F Simply financial instruments which have value determined by prices of the underlying assets. F A derivatives has little value. Its values is entirely dependent on the value of the underlying asset. F For example : hold a corn futures contract (derivatives, the value of the contract will rise and fall as the value of corn. Unlike the corn market transactions where the corn is bought or sold for cash and prevailing price for immediate delivery, derivatives transaction are transaction at some point in the future at price determined today. Objectives To increase his personal ware but with minimal risks. Derivatives are instruments to create minimize risks. History Of Derivatives Hazima, Mariamah, Norhasma & Norhanim

4. Distributor Sales Review | May 1980 F Malaysia joined the derivatives market trading commodity with the launched of Crude Palm Oil (CPO) at KLCE in Oct 1980 F On 1985, proposed that the KLCE diversify into non-tangible commodity – the plan is temporary. F Oct 1987, stock market crash. 2000 F On Dec 2000, the stock index option on the KLSE CI has launched F In Dec 2001, MDEX became fully electronic. Electronic trading with its greater transparency and speed of execution has increased the value of CPO trading. F In Sept 2002, 697 futures brokers representatives licensed by Securities Commission and 49 futures fund manager representatives F In Feb 2003, 21 licensed futures brokers and 12 licensed futures fund managers. F In Apr 2004, F In Apr 2006, Single Stocks Futures (SSF) contracts will introduced by Bursa 1990 F KLSE split from the Singapore Exchange. The Development Of The Malaysian Derivatives Market Prepare By : Hazima, Mariamah, Norhasma & Norhanim

5. Distributor Sales Review | May Prospects of derivatives market Continue our efforts to widen our distribution channel s and educate the domestic marketplace Global outreach to expand visibility of the Malaysian derivatives market in the international marketplace. Expected to continue to benefit from the volatility and uncertainty seen in global commodities and securities markets for the balance of the year. En Hafizi – we only able to find the general prospects as above. Details are related to Islamic prospects. It is ok?

6. Distributor Sales Review | May Impediments/challenge (halangan) I. Lack of market makers  Market makers exist to facilitate market liquidity  Rationale of market makers to smoothen and provide continuity of trades & play a role in preventing trading seizures  Lack of market makers & attendant problems of liquidity be the main stumbling to participate of institutional players  Without sufficient deep markets institutional players cannot participate & w/o institutional participation one cannot have liquid markets II.Comparative lack of leverage  Leverage inherent is a key attraction for users  Attraction is comparatively muted in the case of Malaysian Equity derivatives (to hedge the risk associated with taking a position in stock by setting limits to the losses by share price)  The T+3 settlement enables purchase of shares for no immediate cash outflow # T = transaction date, which is the day the transaction takes place. # 1, 2 or 3 = denote days after the transaction date the settlement/ transfer of money and security  T+3 for stocks may neutralizes leverage of equity derivatives but works against it  Players in markets required to deposit immediate margin payment  With margin financing, leverage are more favorable with stocks than equity derivates

7. Distributor Sales Review | May Impediments/challenge (con’t) III.Regulations a.Ban on short selling  Prohibition of short selling has direct impact on trading volume of equity derivatives  Prohibition effect the key use of financial derivatives  Prohibition prevents hedging of long positions for passively hedged “long volatility” positions. b.Limitation of use by local investment institutions  Limits on investments by professionally managed Unit Trust/ Mutual Funds  Unit Trust not allowed to buy derivates as substitutes for market exposure in portfolio (UT only use futures to hedge their portfolio)  Allowed to hedging positions, derivatives is capped at 10% of total NAV

8. Distributor Sales Review | May Impediments/challenge (con’t) c.Segregation of licensing and trading  Existence of SIA (Securities Ind Act) & FIA (Futures Ind Act), single license is sufficient for KLSE products (derivatives require add special license)  Special license allows to trade on specific set of derivative instruments  Impact of segregation:- Brokers- derivatives are low volume, low margin but high cost product Maybank, Hong Leong, Amanah, Affin, Profutures- futures operations were closed down in 2002 & 2003  Market regulations and inconsistencies have net effect of providing challenge which are inimical to long term goal of Capital Market development Brokers- derivatives are low volume, low margin but high cost product Maybank, Hong Leong, Amanah, Affin, Profutures- futures operations were closed down in 2002 & 2003