Industry players all for local mercantile exchange

PETALING JAYA: The idea for the creation of a mercantile exchange to
facilitate the trading of precious metals such as gold is a good one
considering it represents a legal and structured way for such trading
to take place, said industry players.
“The fact that so many
people got burnt through illegal schemes involving the trading of
gold-related products is testament to the pent-up demand (for trading
of gold),” said an industry source.
He added that this would
actually give the public more accessibility in terms of buying and
selling of gold, whereby the widely-used method now was to deal with
over-the-counter goldsmiths and jewellery chains, along with different
gold investment plans by various banks.
Last week, a gold scam
came to light when a local bank revealed that it had incurred losses to
the tune of RM75mil after it bought fake gold via its Islamic
pawn-broking service.
The bullion had attracted attention of
late as the value of gold has increased tremendously due to the
economic uncertainties that had led to investors rushing into safe
haven assets like gold.
“With the exchange, precious metals and
other commodities would have a much more established platform and open
access for the public’s demand for such an asset class,” the source
said.
Recently, the Securities Commission (SC) introduced the
concept of a mercantile exchange for trading and hedging of gold
futures and other precious metals.
The idea for such a
mercantile exchange has its roots in the Capital Master Plan 2, which
states that its intentions are to increase products on the derivatives
market to deepen market liquidity, improve the ability to trade across
markets and to hedge risks.
Reliable sources said the SC was
actively drawing up its plans and would draw from lessons learnt in
other markets to set up the local mercantile exchange.
Currently,
the leading mercantile exchanges of the world are the Chicago
Mercantile Exchange and New York Mercantile Exchange where it is deemed
as the benchmark for global price discovery on commodities traded which
include gold among other commodities.
Meanwhile, Nusantara Bullion Exchange (Nubex) chief operating officer and executive director Mohd Faizal Mohd Nor
welcomes the move by the Government to set up a local platform as it
would minimise the exposure of foreign exchange risk for traders and
investors.
When contacted, he expressed concerns about the
mechanics of such an exchange including, for example, how spot delivery
will be made.
However, he cautioned that investors should do their homework before venturing into the market.
“As
individuals, the public would not be very familiar with the market and
this is where education is crucial, otherwise it would be a very
expensive lesson for them,” he said.
He said the local mercantile exchange would be a good platform for retailers to do some hedging on their businesses.
Meanwhile,
a fund manager said he was concerned if dealers here understood the
complexities of trading in gold futures and others.
“There are
several types of precious metals to consider, such as gold, silver,
platinum and palladium, and the value is not determined by the
performance of a particular company. Supply and demand dictates prices
globally and it involve a lot more homework before one is ready to
invest,” he said.
However, it is understood that education will
play a big part in the SC’s initiatives to build this new platform,
similar to the education drive it is embarking on to create the
awareness on the newly-launched Private Retirement Scheme.