Catalysing Investment and Funding Ecosystem

As digitalisation and democratisation reshape how capital markets operate, the SC is committed towards ensuring that the investment and funding ecosystem is in line with the market’s changing needs. To this end, efforts have been undertaken to enhance the public and private fundraising ecosystem, strengthen the derivatives market, and embrace the digital age.

Enhancing Public and Private Fundraising Ecosystem

Expanding fundraising avenues for MSMEs
In line with efforts to enable an inclusive multi-layered capital market, the SC continues to look towards more diversified fundraising avenues for businesses, including expanding alternative fundraising platforms for MSMEs and mid-tier companies (MTCs) in particular. Given that MSMEs and MTCs collectively contribute more than half of the country’s gross domestic product (GDP), it is essential to support their post-pandemic recovery journey in meeting their financing needs as they are integral to Malaysia’s future growth, economic sustainability and continued innovation.

Since inception, ECF and P2P financing have been on a continued rise, with a growing number of MSMEs turning to digital platforms to secure capital. In total, ECF and P2P financing have facilitated 7,218 MSMEs to raise more than RM4.4 billion. Although there was a 36% decrease in total fundraising via ECF in 2022 to RM140.4 million (2021: RM220.7 million), ticket sizes were larger, with 21% of campaigns raising above RM3 million each (2021: 17% of campaigns). P2P financing continued to grow in 2022, with total fundraising amounting to RM1.6 billion, recording a 38% increase (2021: RM1.1 billion) which benefited 3,732 companies (2021:1,986).

The SC has also seen traction in the ECF and P2P financing offerings in the agriculture sector – a sector of strategic importance to the local economy. Further, the launch of Malaysia Co-Investment Fund (MyCIF) special co-investment ratio of 1:2 in 2022, has encouraged more private investments into this sector via these alternative financing platforms. Since inception, ECF and P2P financing have fundraised over RM430 million benefitting more than 400 agri-related MSMEs across the entire value chain: upstream, midstream and downstream.

To promote the ECF and P2P financing market further, several initiatives had been successfully implemented to serve the needs of a wider range of businesses and spur higher market growth, such as the following efforts:
Widening access to Shariah-compliant financing in ECF and P2P financing
ECF and P2P financing have continued to broaden access to financing for MSMEs. Shariah-compliant offerings on these platforms have also gained traction, with a total of RM368.13 million funds raised as of 31 December 2022.

To further harness the potential of ECF and P2P financing platforms, the SC opened applications for registration of new ECF and P2P financing operators with Shariah-based solutions and value-propositions in 2022. This measure is expected to catalyse innovation in Shariah-compliant offerings to further facilitate access to funding needs of MSMEs through alternative fundraising digital platforms, and promote greater recovery. It also aims to foster the growth of MSMEs in the halal economy while allowing greater access to investments for all capital market participants.
Catalysing growth in the underserved segments: SCxSC GROW
In October 2022, the SCxSC GROW, a new collaborative programme, was launched under the SC’s fintech flagship initiative Synergistic Collaboration by the SC (SCxSC). The SCxSC GROW embodies a collaborative effort with partners in the fintech ecosystem to harness the potential of alternative fundraising digital platforms to meet the needs of underserved players in strategic sectors.

The first edition of the SCxSC GROW initiative focused on agriculture, a sector which remains at the forefront of Malaysia’s growth priorities and is one of the backbone sectors in Malaysia’s economic development. The inaugural launch of SCxSC GROW was supported by relevant ministries, agencies and key players in the agriculture ecosystem during a one-day workshop with the theme ‘Unlocking Alternative Financing Potential for Agriculture’. The workshop explored the potential roles of alternative financing avenues that may contribute towards addressing some of the financial gaps that exist in the agriculture sector. It also garnered greater awareness on ECF and P2P financing and encouraged better co-ordination to move the agriculture sector forward and strengthen the country’s food security.

Some 40 representatives, including senior officials from relevant ministries, agencies and key players attended the workshop. They include the Ministry of Agriculture and Food Industry (MAFI), Federal Agricultural Marketing Authority (FAMA) and Agrobank.

Read more on media release ‘SC, Agro-based Agencies Eye Alternative Financing for Agriculture Sector’.
Helping MSMEs to regain footing in the economic recovery via MyCIF
MyCIF is an initiative set up by the Malaysian government to co-invest in MSMEs and social enterprises alongside private investors via ECF and P2P financing platforms. Since 2019, a total of RM230 million has been channeled to the MyCIF which was set up as part of Budget 2019. As at 31 December 2022, MyCIF has successfully co-invested over RM638 million in approximately 35,000 ECF and P2P financing campaigns, benefitting 3,635 MSMEs. The fund had co-invested alongside more than RM2.56 billion from private investors.

In 2022, MyCIF focused on the agriculture sector, an industry identified to be of strategic importance to the local economic recovery.
Expanding fundraising avenues for MTCs
While MTCs in Malaysia represent about 2% of total registered businesses, the SC recognises that they play a vital role in driving economic growth as they contributed 22.9% to the country’s total GDP in 2021. It has been observed that only a small number have been able to tap into the corporate bond and sukuk market, relying instead on private funding and bank loans.

In this regard, the SC in October 2022 allowed the opening of new P2P operators, with priority granted to those able to show specific value proposition, including the ability to facilitate debt-based funding opportunities for MTCs. Supported by the SC’s RMO framework, it provides a safe, secure and regulated private fundraising avenue which allows for quicker access to financing for MTCs in the capital market.

Through specialised P2P platforms, MTCs would have diversified options to raise debt-based financing directly from investors. MTCs would also stand to gain from wider visibility from investors as they will be able to go public through P2P platforms. This would also give the opportunity to retail investors who are largely equitycentric to invest in debt instruments issued by MTCs, further enriching Malaysia’s capital markets.

The list of eligible issuers able to raise funds on P2P platforms has also been expanded to include PLCs and their subsidiaries. This allows PLCs and their subsidiaries to further broaden their funding channels and diversify their investor base.

Private Market

Special Feature 2

Reinvigorating Capital Formation for Sustainable Economic Development

Enhancing the Derivatives Market

Modification of Gold Futures on Bursa Malaysia Derivatives
Following a review, Bursa Malaysia Derivatives (BMD) launched its modified Gold Futures (FGLD) on 19 September 2022. With the SC’s approval of the modified FGLD, investors are given opportunities to trade in gold beyond traditional methods such as buying and selling of physical gold, and with minimal exposure to foreign exchange movement.

The FGLD contract was originally launched in 2013. However, due to contract design issues such as contract sizing and exposure to foreign exchange risk, interest to trade the FGLD contract started to wane by 2018. As gold remains an attractive trading instrument, BMD recently modified the FGLD contract and adopted the ‘quanto’ feature. The modified FGLD contract will be quoted in US dollar but settled in Ringgit Malaysia using a fixed multiplier, thus minimising exposure to foreign exchange rate.

Having aligned with global trading convention, the modified FGLD contract provides price transparency while trading as close as possible to the true price of gold. This is due to the fact that the FGLD contract is traded in US dollars and the contracts’ final settlement price references the London AM Fix Price, an internationally recognised gold benchmark price.
Capturing ESG opportunities through the FTSE4Good Bursa Malaysia Index Futures on Bursa Malaysia Derivatives
On 28 September 2022, the SC granted BMD approvalin- principle (AIP) for the introduction of the FTSE4Good Bursa Malaysia Index Futures (F4GM) contract. This is in line with the clear shift to ESG investing globally and the growing acceptance of such investments in Malaysia. The F4GM contract will be the first ESG-themed index futures contract available on the derivatives exchange. It is designed to help with the price discovery of ESG assets and caters to investors who have embraced sustainability and are seeking capital market products to match their values and convictions.

The contract is aligned to the nation’s sustainability agenda and complements current initiatives such as the implementation of Malaysian Sustainable Palm Oil (MSPO) Certified Physical Delivery for palm oil on the exchange and the launch of Bursa Malaysia’s voluntary carbon market in December 2022.

The F4GM contract was successfully launched in December 2022.
Enhancement to structured warrants framework
Since its introduction more than a decade ago, structured warrants (SW) have been a popular trading instrument among retail investors. SW are generally issued based on equity and equity-based indices to investors from a current pool of seven issuers in the market.

To facilitate a greater variety of SW issuances to meet investors’ risk profiles, and to further augment the attractiveness of the Malaysian SW market, enhancements were made to the SW framework in 2022, focusing on the product parameters of SW.

The enhancements to the framework include:
Expanding the underlying assets to include commodities, leveraging Malaysia’s strength as a commodity producing country;
Adjustment to market capitalisation criteria for shares and exchange-traded funds (ETFs) listed on Bursa Malaysia, where the market capitalisation criteria for shares listed on Bursa Malaysia will be lowered to RM500 million, and no market capitalisation criterion will apply on ETFs listed on Bursa Malaysia; and
Shortening of the minimum tenure for index warrants from the current six months to three months.

With the aim to further improve market efficiency and liquidity, obligations imposed on market makers were also tightened. These market makers are required to be present in the market for at least 80% of the trading hours, provide narrower price spread of 10 bids and maintain the continuous bid-ask offer at a higher volume of at least 5,000 units of SW.

Relevant rules in Bursa Malaysia Securities were amended and came into effect in January 2022 to facilitate the tightening of market makers’ obligations. For commoditybased SW, the SC is working towards getting a prescription order to facilitate the introduction of commodity-based SW in the market.

The SC had also revised the Prospectus Guidelines on the offering of SW in June 2022 to facilitate clear, balanced, fair and full disclosures to investors. Key amendments include the requirement to disclose the fees and charges involved and potential tax implications when investors exercise their SW as well as disclosure of the relationship between the issuer and the guarantor, where there is a performance guarantee. The revisions are also, aimed at increasing the functionality and ease of navigation in prospectuses for investors and minimising usage of technical and legal jargon to ease investors’ comprehension and understanding.

Spurring Continued Growth by Embracing the Digital Age

Development in the digital offerings of the capital market
As the demand for digital services grew, the capital market continued to witness encouraging growth via digital innovation and the introduction of new business models.
Initial exchange offerings
Following the introduction of the regulatory framework governing digital token offering, the SC has registered two initial exchange offerings (IEOs) operators in March 2022. The registered IEO operators will provide an alternative avenue for eligible companies to raise funds via the issuance of digital tokens in Malaysia. These new operators will be required to carry out the necessary assessments to, among others, verify the issuer’s digital value proposition, review the issuer’s proposal and disclosures in its whitepaper, and undertake a comprehensive due diligence on the issuer and its token offering, prior to hosting the issuer’s digital token on their platform. An issuer may raise funds of up to RM100 million from retail, sophisticated and angel investors, subject to the respective investment limits provided in the SC’s Guidelines on Digital Assets.
Digital asset market
The local digital asset market has moved along with the global market trend in 2022, with an average daily transaction value of RM25.75 million in 2022, compared with RM57.29 million in 2021. Further, more than 128,000 accounts were created in 2022, which added 17% more accounts since end of 2021.

The SC continues to promote responsible innovation within the digital asset space and places a high priority on managing emerging risks and safeguarding the interests of investors. Recognising the strong appetite to operate new digital asset exchanges (DAX) in Malaysia, the SC has opened the application for RMO-DAX registration and enabled a new digital broker business model to operate on the RMO-DAX. This will facilitate the introduction of platforms with different value propositions.

As at 31 December 2022, there were four RMO-DAX operators registered with the SC. Allowing more players to enter the market increases capital market vibrancy by widening the number of regulated exchange platforms for investors to invest in.
Digital investment management
The digital investment management (DIM) segment continued to expand its capital market offerings to address the investment needs of the emerging digital generation of investors. The segment had grown in an upward trend over the years, with a total AUM of more than RM1.39 billion as at end 2022. The number of new accounts created has increased by 42%, since 2021, with the majority of accounts held by men younger than 35 years old. Women-held accounts have invested at least 57% more since December 2021, indicating a positive step towards closing the gender investment gap.
Digital-only brokerage
Digital brokers have enjoyed a dominant presence from retail investors using online brokerage accounts, particularly among millennial investors who comprised the majority (72%) of the clientele base. The increased retail interest in the equity market has peaked (33%) in 2022 during this economic recovery comparatively to 2021, with digital brokers gaining a retail market share of 4%1 with total number of accounts having risen by more than 10% to approximately 276,000 in 2022 [2021: approximately 251,000].
Catalysing greater adoption of emerging tech
In the era of post-pandemic recovery, investments into technology has become crucial to sharpen the competitive edge for businesses. Malaysia’s capital market players will only continue to grow with the help of innovative digital solutions such as the use of artificial intelligence, data analytics, and blockchain technology. To boost productivity and increase digitalisation in the capital market, the SC, in partnership with the Capital Market Development Fund (CMDF), established a RM30 million Digital Innovation Fund (DIGID). Through this fund, the SC will co-fund innovative projects that demonstrate the use of technology to allow new and competitive propositions to be brought into the Malaysian capital market. DIGID aims to encourage smaller capital market players to adopt innovative digital solutions and the development of industry-wide solutions impacting capital raising and investment activities.

Read more on media release ‘SC Unveils Digital-related Initiatives to Bolster Capital Market’.
Facilitating cross-border access to ASEAN Collective Investment Schemes via Digital Repository
In October 2022, the ASEAN Collective Investment Schemes (CIS) Digital Repository was launched at the ASEAN Capital Markets Forum (ACMF) International Conference 2022. The ASEAN CIS Digital Repository is an extension to the ACMF’s website and the objective is to provide a ‘go to’ site for the public to access information regarding the ASEAN CIS Framework. This includes access to information on CIS that have been approved as ASEAN CIS by respective signatories to the ASEAN CIS Framework as well as ASEAN CIS approved for crossborder offering. As the updated ACMF website now acts as a digital repository for the ASEAN CIS’ offering and marketing documents, interested investors would only need to go the ACMF website to gain access to the latest information and documentation on ASEAN CIS.

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.