Fostering An Inclusive and Competitive Derivatives Market

In its efforts to foster an inclusive and competitive derivatives market, the SC has undertaken various initiatives, which include the mini-United States Dollar and Chinese Renminbi currency futures contract (FCNH) and soybean oil future contract (FSOY). These initiatives are expected to improve investors’ accessibility to risk management tools and broaden the derivative product offerings.

  • Mini USD-CNH Currency Futures Contract
    In line with measures to liberalise the fund management industry, efforts were undertaken to provide investors with access to a more varied range of alternative assets and strategies. This initiative reflects the SC’s commitment to enhance the depth and breadth of the capital market while promoting an inclusive investment environment for various risk appetites and needs.

    In this regard, the Wholesale Fund Framework has been expanded to enable domestic managers to invest in in alternative investment products via special purpose vehicles, in addition to the available conventional assets such as securities, derivatives, money market instruments and deposits.

    To improve transparency, fund managers will be required to provide an offering document setting out information that would facilitate comparability between funds and enable investors to make more informed decisions. Additional measures have been put in place to ensure fund managers are prepared to manage the risks associated with alternative assets.

    Overall, these measures will provide wider investment opportunities and diversification potential for investors as well as broaden fund managers’ capabilities to maximise returns and promote more innovation which in turn will improve competitiveness of the Malaysian fund management industry.
  • Bursa Malaysia Derivatives DCE Soybean Oil Futures Contract
    On 13 September 2023, the SC also granted approvalin- principal for the introduction of FSOY on BMD. Similar to the FCNH contract, FSOY is based on a licensing agreement with the Dalian Commodity Exchange (DCE) for the settlement price of the DCE’s soybean oil futures contract. This collaboration is the culmination of two years of groundwork and enjoys the support of the China Securities Regulatory Commission (CSRC).

    While the price in China is used as a reference, the FSOY contract is standalone and separate and will be traded and cleared at BMD. The proposed introduction of FSOY taps into BMD’s current expertise with edible oils, as the exchange provides the global pricing benchmark for crude palm oil through the Crude Palm Oil Futures (FCPO) contract.

    Having both crude palm oil and soybean oil futures on a single exchange would also result in cross margining savings. Further, to attract participants seeking exposure to Dalian’s soybean oil pricing – the contract will be denominated in US dollars, which is an international pricing unit.

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.

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