Question

The financial crisis in 2008 has caused the derivatives instruments to be blamed for increasing systemic risk. Although derivatives were not a central cause of the crisis, the complexity and limited transparency of the market reinforced the potential for excessive risk-taking, as regulators did not have a clear view into how derivatives were being used. Critically evaluate the challenges of derivative market in Malaysia.

Answer 1

Challenges of Derivative market in Malaysia are -

1.Malaysian domestic fund is heavily invested in equities. So, it requires a change in approach from the investors to engage themselves in trading derivatives.

2.Investors are still not aware of benefits of derivatives and hence it will require time and education to bring about a shift in approach and habit.

3.There is too much red-tape and bureaucratic huddles when it comes to trading in derivatives which drives the investors away.

4.There is issues with respect to cost of trading, clearing participation and comparable services like that for equity investors.