The Financial Markets Committee (FMC) together with Bank Negara Malaysia (BNM) have been actively monitoring and reviewing the development of the onshore financial market with the aim to further broaden and deepen the markets. The FMC is pleased to announce a number of initiatives that would promote a fair and effective financial market, improve bond market liquidity, ease hedging activities as well as enhance transparency and market information.
I. Promote a fair and effective financial market
- Supporting the aspiration to promote a financial market that is trusted, competitive, and resilient, the FMC will be introducing the Principles for a Fair and Effective Financial Market (‘Principles’). This document outlines five universal principles as guidance, and serves as an anchor to promote fair and effective functioning of the financial markets. Market participants are encouraged to adopt and assimilate these principles into their conduct and internal codes. The Principles are drawn from various global best standards of market practices and aimed at upholding the integrity and trust in the financial markets. The Principles also take into account Malaysia’s structural difference as an emerging market, which would require unique approaches and measures while preserving its overall stability.
- A new code of conduct, called the Code of Conduct for Malaysian Wholesale Financial Markets, will be also issued under the Financial Services Act 2013 and Islamic Financial Services Act 2013. The Code of Conduct, a revision and enhancement of the previous code, sets out the principles and standards to be observed by market participants and the role of industry associations in preserving market order and stability. The Code will also include requirements for financial institutions to put in place robust systems and internal controls to safeguard the professionalism and ethical standards in financial markets. Consequently, with the issuance of this new code of conduct, the Malaysia Code of Conduct for Principals and Brokers in Wholesale Money and Foreign Exchange Markets issued in 1994, will be superseded.
II. To improve liquidity in the bond market
- To facilitate a more effective avenue for the hedging of interest rate risk exposure as well as to generate more trading activities and liquidity in the secondary government bond market, the regulated short-selling framework will be liberalised to allow all residents to participate in short-selling activities. This initiative will enable access to risk management tools, add liquidity to the bond market and facilitate a better price discovery process for resident investors.
- To elevate liquidity in the Malaysian Government Investment Issue (MGII) and narrow the pricing gap between Malaysian Government Securities (MGS) and MGII, the eligible securities for short-selling transaction will be expanded to include MGII with an outstanding nominal amount of at least RM2 billion. The eligibility criteria is similar to the current framework for MGS. A consultation paper will be issued for market feedback on the proposed inclusion of MGII for short-selling activities.
III. Additional hedging flexibility
- Following feedback from financial market players, the existing passive and dynamic hedging flexibilities will be simplified and streamlined whereby registered investors will be allowed to fully hedge and actively manage their exposures including unwinding of hedging positions. Registered non-bank entities will be allowed to hedge up to 100% of their underlying assets as well as to manage an additional 25% of FX exposures.
- In addition, flexibility is given for residents to actively manage their FX risk exposure up to an aggregate net open position limit of RM6 million per client per bank, without documentary evidence, will be expanded to include three additional currencies, namely Pound Sterling (GBP), Euro (EUR) and Japanese Yen (JPY).
IV. Strengthened financial market infrastructure
To support the above future market development initiatives, information reporting and settlement infrastructure will be enhanced for greater transparency and to facilitate surveillance on the onshore financial market.
- The large value payment system, Real-time Electronic Transfer of Funds and Securities System (RENTAS), will be enhanced to implement segregated securities account up to fund manager level.
- A Local Operating Unit (LOU) will be established to adopt and manage the Legal Entity Identifier (LEI). In addition, the applicable reporting system will be enhanced to integrate LEI and facilitate better surveillance under a more liberalised financial market environment.
All the initiatives under I-III will take effect on 2 May 2017, while enhancement to the financial market infrastructure initiative will be implemented on a gradual basis and is expected to be completed over a 12 – 18 months period.
Financial Markets Committee
13 April 2017
About Financial Markets Committee (FMC)
The FMC is a committee established by BNM in May 2016 and comprises representatives from Bank Negara Malaysia, financial institutions, corporations, financial service providers and other institutions which have prominent role or participation in the financial markets. The Chair of the FMC is BNM Assistant Governor Adnan Zaylani.
The objective of FMC is to broaden the industry engagement with a focus in reviewing and formulating comprehensive strategies for the wholesale financial markets to meet the diverse and complex demands of a more developed and internationally integrated economy. For more information on the FMC, please refer to the following link: Link
 Regulated Short-Selling of Securities in the Wholesale Money Market
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