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)
Crude Palm Kernel Oil Futures (FPKO)
USD Crude Palm Oil Futures (FUPO)
Gold Futures (FGLD)
USD Tin Futures (FTIN)
FEPO is a Ringgit Malaysia (MYR) denominated Crude Palm Oil Futures Contract traded on Bursa Malaysia Derivatives that provides a new avenue for price discovery of the crude palm oil (CPO) produced in East Malaysia. It complements the existing FCPO contract with specifications designed to meet the needs of market participants with exposure to the East Malaysia palm oil market. Its delivery ports located in Sabah and Sarawak reduce logistics cost for physical delivery and earlier trading hours enable new trading opportunities.
On the other hand, retail investors can trade FEPO to gain leveraged exposure to the East Malaysia 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 East Malaysia Crude Palm Oil prices, and vice versa for a bearish outlook.
In addition, the FEPO Contract is Shariah-compliant where the Shariah Committee of Bursa Malaysia Islamic Services (BMIS) has agreed to approve FEPO as Shariah-compliant, subject to the existing Shariah Advisory Council of the Securities Commission Malaysia’s (SAC SC) resolution on Crude Palm Oil Futures (FCPO). The FCPO has been endorsed to be Shariah-compliant by the SAC SC at its 11th Meeting on 26th of November 1997. The Shariah pronouncement of the Shariah Committee of BMIS 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 FEPO 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 FEPO:
Contract Code
FEPO
Underlying Instrument
Crude Palm Oil
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: 9.00 am to 12.30 pm Afternoon trading Session: 2.30 pm to 6.00 pm Monday to Thursday (Malaysia time)After-hours (T+1) trading session: 9.00 pm to 11.30 pm
Final Settlement
Physical delivery All FEPO 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
The FEPO contract mirrors most of FCPO’s specifications with a few notable differences. Firstly, FEPO has a longer morning trading session which begins at 9.00am. Secondly, its designated delivery ports are in East Malaysia, whereas the delivery ports for FCPO are in Peninsular Malaysia. Lastly, FEPO’s speculative position limits are set at half of the standard FCPO position limit.
Wondering how physical delivery of CPO takes place under the FCPO and FEPO contracts? 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 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 FEPO?
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
2. Select “Derivatives”
3. Select your “Preferred Futures Broker” to open an account
4. Fill in your details and submit.
Tags: Shariah Derivatives