Source: BURSA MALAYSIA | Published: July 2023
Prepared by Shariah Centre of Excellence
Commodity futures are derivatives financial contracts whose value depend on the value of the underlying commodity that obligates the buyer to buy or the seller to sell the commodity at a specified price and a predetermined date in the future. Some of the main commodity futures contracts that are listed on Bursa Malaysia are:
Crude Palm Oil Futures (FCPO) East Malaysia Crude Palm Oil Futures (FEPO)
USD RBD Palm Olein Futures (FPOL)
USD RBD Palm Olein Futures (FPOL)
USD Crude Palm Oil Futures (FUPO)
Gold Futures (FGLD)
USD Tin Futures (FTIN)
Did you know that the Bursa Malaysia Crude Palm Oil Futures (FCPO) is the most actively traded Crude Palm Oil (CPO) futures contract in the world?
FCPO is a Ringgit Malaysia (MYR) denominated Crude Palm Oil Futures contract traded on Bursa Malaysia, providing market participants a global price benchmark for the CPO Market since October 1980 in the Commodity Futures Exchange space. For over 40 years, FCPO is actively used by edible oils and fats industry players as a risk management solution, as well as by fund managers and financial institutions for managing price fluctuations in the market.
On the other hand, retail investors can trade FCPO to gain leveraged exposure to the Crude Palm Oil market with a relatively small amount of capital (initial margin). Investors can also take advantage of both bull and bear markets, where they can buy low and sell high for a bullish outlook on the movement of Crude Palm Oil prices, and vice versa for a bearish outlook.
FCPO is permissible under Islamic jurisprudence, which means the contract is shariah-compliant. At the 11th Shariah Advisory Council of the Securities Commission Malaysia (SAC SC) meeting on 26 November 1997, the SAC SC resolved that the futures contract on crude palm oil is permissible as it is in accordance with Shariah principles. The Resolutions of the Shariah Advisory Council of the Securities Commission Malaysia is available here.
One of the main issues regarding futures contract is bai’ ma’dum (sale of non-available goods), which can be described as buying something that does not exist. The prohibition of bai` ma`dum was due to presence of the element of uncertainty to hand over the goods sold. However, bai` ma`dum involving something that exists and can be obtained by the seller or can be made tangible, is approved and valid.
This situation does not take place in the crude palm oil futures market. A buyer or seller can close position on FCPO at any time before the contract maturity or enter into final settlement by physical delivery on the contract expiry date. In addition, the clearing house ensures the delivery and settlement of a transaction. Therefore, the element of gharar (uncertainty) does not exist or is insignificant.
Key Features of FCPO:
Contract Code FCPO
Underlying Instrument Crude Palm Oil
Contract Size 25 Metric Tonnes (MT)
Contract Size 25 Metric Tonnes (MT)
Minimum Price Fluctuation MYR1.00 per metric tonne
Contract Months Spot month and the next 11 succeeding months, and thereafter, alternate months up to 36 months ahead
Trading Hours Monday to Friday (Malaysia time)Morning trading session: 10.30 am to 12.30 pm Afternoon trading Session: 2.30 pm to 6.00 pm After-hours (T+1) trading session: 9.00 pm to 11.30 pm
Final Settlement Physical delivery All FCPO physical delivery must be Malaysian Sustainable Palm Oil (MSPO) certified.
Final Trading Day and Maturity Date
Contract expires at noon on the 15th day of the spot month, or if the 15th is a non-market day, the Final Trading Day will be the last Business Day preceding the 15th day
Wondering how physical delivery of CPO takes place under the FCPO contract? Bursa Malaysia Derivatives is the first Exchange in the world to introduce physically delivered commodity derivatives contracts with sustainable requirement mandated for delivery, as all physical delivery of CPO under our contracts must be sourced from palm oil mills that meet the Malaysian Sustainable Palm Oil (MSPO) Certification Scheme requirements. Watch this video to learn more about the physical delivery process.
VIDEO For more advanced investors, arbitrage opportunities between FCPO and the East Malaysia Crude Palm Oil Futures (FEPO) that arise from the price differences between Peninsular Malaysia and East Malaysia Crude Palm Oil can be captured via the FCPO/FEPO Inter-commodity Spread (ICS) functionality on their trading platforms.
ICS enables spread trade execution between the two products at a “click of a button” for the convenience of the trading community. It eliminates the risk of slippage from executing separate individual legs and reduces monitoring time by allowing the trading platform to capture the desired spread. It also provides capital efficiency as margin credit is offered to market participants holding spread positions. Watch this video to learn more about the Inter-commodity Spread.
VIDEO Learn more about FEPO and read its full contract specification HERE
How to Trade FCPO? You must open an account with a licensed Futures Broker to trade any Bursa Malaysia Derivatives contract. Here are the steps:
1. Visit https://www.bursamarketplace.com/mkt/opentradingaccount
Tags: Shariah Derivatives
