Deriving a deal in Malaysia

JPMorgan wants to offer Malaysians the chance to buy derivatives in ringgit

JPMorgan says it has applied to Bank Negara Malaysia to offer structured products in ringgit to local investors. "The central bank has had a lot of questions on how we will manage risks and what products we'll offer, but we hope to receive approval in the next two to three weeks," says Samir Bhandari, JPMorgan head of derivatives for South and South-East Asia, Samir Bhandari.

Products that JPMorgan may offer include: Quanto options; range accrual notes linked to local benchmarks and CMS-linked structures. Malaysia has lagged behind others in the region, such as Singapore and Taiwan, which have much more sophisticated derivatives markets.

Samir notes that Malaysian investors have hitherto been much more conservative than their neighbours, but as the central bank becomes more willing to offer varied products he believes investors' risk appetite will increase.

"After 1995, people were careful of the D word, but in the ten years since then, people have become much more comfortable with derivatives," says the Singapore-based banker, referring to a troubling time for derivatives. In the mid 1990s, the infamous collapse of Barings Bank was a direct result of Singapore-based trader Nick Leeson leaving a $1.4 billion hole in Barings' balance due to his unauthorized derivatives speculation.

At the same time, in the US, Procter & Gamble and Bankers Trust were counter-suing one another over billions of dollars in derivatives-related losses, lawsuits that underscored the dangers of these instruments when customers don't understand them.

Educating clients on the risks and benefits of derivatives is one of the reasons Malaysian investors are increasingly more comfortable with structured products. As a result, not only are regional banks holding one-on-one meetings with their clients, but also full on conferences to discuss the merits of these products.

The investors who are showing the keenest interest are government linked companies looking to manage their liabilities and pension funds and insurance companies looking to manage their assets, says Samir.

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