Bank Negara unveils measures to avert bond index exclusion
MALAYSIA is taking measures to deepen its onshore financial market as the country tries to avert its potential disqualification from the World Government Bond Index (WGBI) next month.
In a press briefing yesterday, Bank Negara governor Datuk Nor Shamsiah Mohd Yunus announced four initiatives to enhance Malaysia’s market accessibility and liquidity.
She pointed out that some of these measures have already been implemented, while the others are currently under consultation.
The central bank governor also introduced another four measures to liberalise foreign exchange administration policies in order to support business efficiency. The measures will be effective from Aug 30.
These new measures were introduced in addition to the six initiatives announced on May 16, which focused on enhancing repo market liquidity and flexibility, improving the delivery mechanism for the Malaysian Government Securities futures settlements and allowing trust banks and global custodians to undertake dynamic hedging on behalf of their underlying clients, among others.
The four new initiatives announced yesterday to enhance market accessibility and liquidity are namely:
> Improved ringgit accessibility after onshore trading hours via the Appointed Overseas Offices (AOOs) for non-resident investors and corporates.
> Principal dealers will quote all off-therun bonds available under the bank’s securities operations, in addition to their existing commitment to provide quotes for benchmark bonds.
> Standard documentation guide for foreign exchange transactions made available for convenient reference by market participants.
> Greater flexibility (longer tenor limit and wider range of repo securities) proposed under revised repo guidelines.
Meanwhile, the foreign exchange administration liberalisation measures are as follows:
> Residents can hedge their foreign currency current account obligations up to their underlying tenure
> Resident treasury centres can hedge on behalf of their related entities, while non-resident treasury centres will also be allowed to do so upon a one-time registration with Bank Negara.
> Non-residents can hedge on anticipatory basis.
> Credit facilities which are used by corporates for miscellaneous expenses such as sundry and employees’ travel expenses are excluded from domestic ringgit borrowings.
Nor Shamsiah said Bank Negara has met with FTSE Russell, the index provider of WGBI, to address the latter’s concerns about Malaysia’s position in the WGBI, especially with regard to the country’s market accessibility.
She described the meetings as “very positive engagements”.
“They were very appreciative of the measures we have put in place to deepen the onshore market, so that real money investors have the required access to hedging onshore.
“They have also engaged with investors and investors have given them the same feedback,” Nor Shamsiah said.
FTSE Russell has placed Malaysia on the fixed income watch list for at least six months beginning April 2019, following the completion of its first fixed-income country classification review.
“Malaysia, currently assigned a ‘2’ and included in the WGBI since 2004, is being considered for a potential downgrade to ‘1’, which would render Malaysia ineligible for inclusion in the WGBI,” FTSE Russell said previously.