Bursa, Dalian Commodity Exchange ink agreement for soybean oil futures settlement price

Bursa Malaysia Derivatives Bhd (BMD) and the Dalian Commodity Exchange (DCE) have signed the licensing agreement for the soybean oil futures settlement price — the first product collaboration between a Chinese derivatives exchange, and an Asian exchange based outside of the republic.

Under the agreement, the DCE has authorised use of the settlement price of DCE soybean oil futures by BMD as the basis to calculate the cash settlement price of its upcoming new product, the Bursa Malaysia DCE soybean oil futures contract (FSOY).

The underlying asset of the FSOY will mirror that of the DCE soybean oil futures. Bursa Malaysia targets to launch the product in the first quarter of 2024, subject to regulatory approval.

The latest collaboration between BMD and the 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 its product offerings.

“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 entities said in a joint statement.

The licensing agreement was signed at the 17th China International Oils and Oilseeds Conference in Dalian, China, a landmark event in the global oils and oilseeds industry jointly organised by the DCE and BMD.

The settlement price licensing agreement was signed by BMD chairman and Bursa Malaysia Bhd chief executive officer Datuk Muhamad Umar Swift and DCE CEO Yan Shaoming.

Muhamad Umar said as the leading commodity derivatives marketplace in Asean, BMD 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,” he added.

The soybean oil futures launched by the DCE in 2006 are 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, BMD offers the world’s most liquid crude palm oil (CPO) futures contract, and is established as the global centre for CPO 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.

“The FSOY will provide international traders with an alternative avenue to access Chinese soybean oil prices, with the convenience to trade both commodities on the same exchange (BMD), enabling cross-margining and capital efficiencies,” they said.