BNM allows investors, issuers to do MGS short-selling
It is a risk management tool that can be used effectively by investors, while widening the bond market’s liquidity.
KUALA LUMPUR: The regulation for the short-selling of the Malaysian Government Securities (MGS) will be expanded to all resident entities, such as investors and issuers, from May 2, this year.
Bank Negara Malaysia (BNM) assistant governor, Adnan Zaylani Mohamad Zahid, said this was undertaken to improve the liquidity in the local bond market.
“It is a risk management tool that can be used effectively by investors, while widening the bond market’s liquidity.
“It will also create spillover into the repo market and other markets, where liquidity will benefit from this flexibility given to the MGS,” he told a media briefing on the development initiatives of Malaysia’s onshore financial market yesterday.
The current framework only allows licensed banks and licensed investment banks to conduct regulated short-selling of MGS.
Adnan Zaylani said the central bank would issue a guideline on the enhanced framework to market participants today for them to make necessary preparations ahead of the implementation date.
He said BNM has also issued a concept paper to include the shariah-compliant instrument,
Adnan Zaylani Mohamad Zahid, BNM assistant governor
Malaysian Government InvestmentIssue(MGII), aseligible securities under the regulated short-selling framework to the financial industry players.
The concept paper’s feedback would be gathered by April 28, he said.
“If we don’t see any major issues to the inclusion of MGII as eligible securities, then this possibly can be (included for implementation) on May 2 as well,” he said.
Adnan Zaylani said in line with this, BNM has revised and enhanced the Code of Conduct for Malaysia’s wholesale financial markets with the introduction of five universal principles to ensure the integrity towards a fair and effective financial market.
“The principles are professionalism and integrity; transparency and accountability; competitive environment; good internal governance and structure; and, compliance to rules and regulations.
“The new principles, among others, require market players to not only exhibit requisite level of expertise and knowledge of regulations; codes; and rules that apply to their profession, but also provide a high degree of transparency and reporting for monitoring, surveillance and data capture,” he said.
In an effort to streamline the foreign exchange hedging framework, Adnan Zaylani said, institutional investors were now allowed to hedge their exposure and actively manage up to 100 per cent of their underlying assets from the current 25 per cent.
The eligible participants for this flexibility also has been expandad to include companies with eligible foreign currency or ringgit asset underlying, he said.
In addition to that, the central bank has added three other major currencies -- British pound, euro and yen -- for the hedging transaction against the ringgit, joining the current US dollar and Chinese renminbi.
On another note, Adnan Zaylani said, BNM would upgrade the Realtime Electronic Transfer of Funds and Securities System (RENTAS) to support greater transparency and facilitate better surveillance in the financial market.
He said the upgrade would also be able to provide a comprehensive data capturing all securities transactions and outstanding investments for all investors in the local bond market.
“Once it is upgraded, the overall bond market framework will comprise a system which is live and real time that will enable us surveillance of transaction as well as who owns and control investment in the bond market,” he said.
Adnan Zaylani said the new system would take about 18 months to be upgraded.
RENTAS is a real time gross settlement system for the transfer and settlement of high value ringgit denominated interbank funds and scripless securities transactions. — Bernama