-  We reaffirm our BUY recommendation on Bursa Malaysia Bhd (Bursa) with an unchanged fair value of RM9.00/share as the exchange followed up on its solid 1HFY13 financial results (reported on July 18) with news of open interest in its derivatives market attaining record highs.

-  At the end of last week, Bursa Malaysia Derivatives (BMD) announced that open interest for all its 10 products achieved an all-time high of 251,994 contracts (+18% YTD). In addition, Crude Palm Oil Futures (FCPO) - the most liquid CPO contract in the world and the global CPO price benchmark - hit a historical high of 201,209 contracts (+16% YTD). Previous peaks for all contracts and FCPO were reached in FY12 (214,065 and 173,649 respectively).

-  Open interest represents the total number of contracts at the end of each day that have not been closed out, exercised, or allowed to expire. A large open interest bodes well for Bursa as it means new money is flowing into the marketplace and more activity is taking place, which translates into greater liquidity.

-  Bursa’s derivatives division has been growing from strength to strength since the formation of its partnership with CME Globex in 4QFY09. Besides the market’s depth, its breadth, as indicated by the rising trend of average daily contracts traded (ADC), has been widening, too. YoY, Bursa’s 1HFY13 ADC was up by 21% to 43,358 contracts (3-year CAGR of 19%). This puts the exchange closer to its ADC target of 50,000 contracts by end-FY13.

-  In other news, Bursa had also recently raised the number of stocks available for restricted short selling (RSS) to 171 following the Securities Commission’s approval of the removal of the 100-stock cap as well as allowing for the fast entry of qualified large-capitalisation stocks. This move comes after RSS trades on Bursa picked up in 2HFY12 to reach a high of RM293mil last month. In comparison, there were no RSS trades in March 2012.

-  We like this development as RSS has the ability to add depth and variety to the local bourse. Nonetheless, we do not believe the additions will significantly raise total trading volumes as only institutional investors are allowed to participate and the major market uncertainty, the 13th GE, has passed.

-  All in all, we conclude that Bursa remains on the right growth path. Liberalisation measures introduced to create a more facilitative trading environment and the launch of more tradable alternatives (eg. ETBS) ensure that the exchange remains competitive and moves it a step closer to being granted a developed market status by index provider FTSE.

Source: AmeSecurities