Bursa Malaysia Derivatives Berhad operates, among others, the futures market for Malaysian Government Securities (MGS) and the Kuala Lumpur Interbank Offer Rate (KLIBOR). Bursa Malaysia Derivatives Berhad is governed by the Futures Industry Act 1993 and falls under the supervision of the Securities Commission (SC). Trading on the Exchange offers the security of trading with a regulated entity that is equipped with the necessary infrastructure and governed by regulations comparable to that of established markets worldwide.

Futures contracts enable investors to hedge short-term or long-term interest rate risks of holding bonds or any investment in the Malaysian capital market. The following derivative instruments are listed and traded on Bursa Malaysia Derivatives Berhad :-

         i.            3-month KLIBOR futures contract
Underlying instrument is the ringgit interbank time deposit in the wholesale money market with 3-month maturity on a 360-day year. Quarterly cycle contract months are March, June, September and December up to five years ahead and two serial months

        ii.            3-year MGS futures contract
Underlying instrument is the 3-year MGS. Contract months are four nearest quarterly cycle months (March, June, September and December) 

      iii.            5-year MGS futures contract
Underlying instrument is the 5-year MGS. Contract months are four nearest quarterly cycle months (March, June, September and December)

      iv.            10-year MGS futures contract
Underlying instrument is the 10-year MGS. Contract months are four nearest quarterly cycle months (March, June, September and December)

               The 3-year, 5-year and 10-year MGS contracts carry a hypothetical coupon rate of 6%, and the yield is derived from the weighted yields of all eligible MGS in the basket. The weightage is announced by the Exchange. Notional amount per MGS Futures contract is RM100,000. Eligible MGS must meet the specifications of the respective bond derivatives contracts. Upon maturity, all bond derivatives are settled in cash terms using a final settlement value. The final settlement price is calculated from the final yield in accordance with the following formula rounded to two decimal points.

                Price = [(C/Y) [1 - (1 + Y/2)-2N] + (1 + Y/2)-2N] * RM 100

                Hedging of interest rate risks can also be undertaken using the following over-the-counter (OTC) derivative transactions with onshore banking institutions:- 

         i.            Interest rate swaps

         ii.           Interest rate swaptions, caps and floors

        iii.           Bond options