In 2010, the Asia-Pacific derivatives market became the world’s largest, with 8.9 billion contracts traded, a 43 percent increase over 2010. Though South Korea, China and India accounted for much of this volume, Bursa Malaysia Derivative Berhad, located in Kuala Lumpur, is also pulling its weight. According to the Futures Industry Association, in 2010, average daily volumes (ADV) at Bursa Malaysia stood at 25,000 contracts. By July 2011, ADV had grown 40 percent to 34,000 contracts.

Much of this increase can be attributed to a strategic partnership Bursa Malaysia formed in 2009 with CME Group. In joining forces, the two exchange operators hope to grow the Malaysia derivatives market by making Crude Palm Oil Futures (FCPO) contracts available through CME Globex, the global electronic trading platform. "We have seen market volume go up since we introduced products on CME Globex," says Dato Tajuddin Atan, Bursa Malaysia Berhad chief executive officer and chairman of Bursa Malaysia Derivatives Berhad. "Since September 2010, the volume of trades in crude palm oil futures has increased by 17 percent, and we are very encouraged by this."

According to Phil Millar, director of alliance venture management at CME Group, making FCPO contracts available globally actually helped meet pent-up demand among investors. "You have to remember that palm oil is among the most heavily used commodities in the world," he says. "There has always been demand for FCPOs, but limited accessibility made trading in this specific product more difficult. Our partnership with Bursa Malaysia lowers those barriers for entry into the market."

Bursa Malaysia’s association with palm oil predates the explosive growth of the Asia-Pacific derivatives market.

In 1930, several bankers in Kuala Lumpur and Singapore founded the Singapore Stockbrokers’ Association, the first formal securities business in what was known then as the Malayan Union, a British Crown Colony. In 1960, this organization evolved into the Malayan Stock Exchange and, in 1964, a newly independent Malaysia saw the establishment of The Stock Exchange of Malaysia, which, in 1973, split into two entities several years after Singapore’s secession. In April 2004, a final name change marked the global debut of Bursa Malaysia Berhad, a fully integrated exchange offering a complete range of investor services and Sharia-compliant products, among them futures trading in palm oil.

Perhaps no other global commodity is as ubiquitous as palm oil, with roughly 180 million tons produced each year. "If you went into your local supermarket, something like 40 percent of the products on the shelves have some element of palm oil in them," says Millar. Palm oil is used in cooking, as an industrial lubricant, a food additive, in detergents and soaps and in biodiesel. Until 2009, Malaysia was the leading producer of palm oil — it now claims second place behind Indonesia. Consequently, Bursa Malaysia is the global center for crude palm oil futures.

Bursa Malaysia’s 2009 decision to partner with CME Group to meet ever-increasing global demand for palm oil futures marks the latest, and perhaps most dramatic, reinvention. "By September 2010, we had successfully migrated all of our trading data onto the CME Globex trading platform," Atan says. "This was an exciting event because we could suddenly leverage this truly global platform to achieve over one million access points. It also gives us access to a highly liquid market and to global distribution channels."

According to Atan, the partnership has already proven fruitful. In the first half of 2011, derivatives trading revenue is up 45 percent over the same period last year. Furthermore, global interest reached an all-time high of nearly 131,000 contracts on July 7, 2011, as palm oil producers hedged against the softening of palm oil prices in the cash market.

From CME Group’s perspective, numbers like these validate a forward-thinking global strategy. "There has been a basic shift in economic tail winds in the last few years from the west to the east," Millar says. "CME Group realized that to be truly representative of where we fit in the global economy we needed to expand our presence in Asia. Having the preeminent regional player in the crude palm oil futures on CME Globex is an important part our strategy for success."

Going forward, Bursa Malaysia and CME Group hope to build upon their recent successes in futures trading. "In Malaysia, our partnership has very good synergy," Millar says. "We plan to help Bursa Malaysia develop its markets and put more of its products on CME Globex." Additionally, Bursa Malaysia plans to broaden its FCPO, and support the creation of hedge and commodity funds and more domestic funds.

Most important, though, the two groups plan to undertake an educational campaign to raise awareness of what Atan calls Bursa Malaysia’s "jewel in the crown," its FCPO contract. Through seminars and other forms of educational outreach, this year the partners hope to educate 400 domestic and international customers on the unique value proposition of crude palm oil futures and on Bursa Malaysia’s emerging prominence in the Asian-Pacific derivatives market. "This is a very promising partnership," Millar says. "Bursa Malaysia has the local expertise, and CME Group has global expertise. Together, we really complement each other."