Democratising Investments through the Digital Assets Ecosystem and Digital Platforms

Technological advancements, global trends and consumers’ growing familiarity with alternative assets in the digital ecosystem continue to evolve the structure of capital markets. Consequently, there is more demand for diversified investment options and increasing preference for digital channels to assess these investment options.

Digital Asset Ecosystem

The digital asset ecosystem in Malaysia has continued to develop and evolve in tandem with development and evolution of digital asset ecosystem globally. In Malaysia, there has been a rebound of crypto-asset trading activities within the recognized market operators – digital asset exchange (RMO-DAX) space, expansion of ecosystem players, increase in digital asset-related products, such as digital asset funds, and initial exchange offering token fundraising as well as more interest in blockchain adoption and tokenisation within the capital market.

The increased interest in digital assets signals Malaysian investors’ growing familiarity with this new asset class and the associated regulated players in the market. This is aligned with the SC’s digital agenda to create a more diversified and democratised capital market.

Digital Asset Investments

The SC observed that the average daily trading value of RMO-DAXs has increased by 2.6 times in 2024 compared to the previous year. Aside from the price rebound globally, this increase could be attributed by the additional eight digital asset (DAs) listed on the RMO-DAX which is a 73% increase from the 11 DAs tradeable in 2023 and the increase in number of overall investor base by approximately 23%.

Since the launch of the first digital asset fund in 2023, three more have been established in 2024. These funds offer a variety of strategies including single-asset passive funds and actively managed funds. Apart from these funds, the collective investment scheme space has also seen funds seeking minor exposure into digital assets through investments in digital assets and blockchain firms. The increased diversity will meet different needs of investors.

To provide greater regulatory clarity on the treatment of DA as securities, the SC has designated DA custodians as a ‘custodian’ under section 121 of the CMSA. As the SC remains cognisant of the importance of the roles that custodians have in capital market activities regardless of the asset class, the same designation and responsibilities shall apply across designated custodians.

Token Fundraising

In 2024, initial exchanges offering (IEO) operators issued their first token issuance for issuers to fundraise. There was an issuance of a tokenised Shariah-compliant investment note for an issuer to fundraise via a tokenised investment note. There were also two issuance(s) of utility tokens, which created new fundraising opportunities by offering investors access to products or services in exchange of tokens.

With the total funds raised amassing RM48 million, the SC believes this is the first step towards building a more vibrant alternative fundraising market.

Securities Tokenisation

Blockchain technology promises various characteristics such as programmability, transparency and accessibility, consequently, driving global interest towards tokenisation of underlying securities. In embracing such developments within the Malaysia market, the SC is looking to issue a guidance on tokenisation of securities to assist intermediaries in understanding and managing the associated risks while providing regulatory clarity.

In line with the SC’s objective towards developing forward-looking policies that support the future of the Malaysian capital market, the SC is collaborating with Khazanah Nasional to explore the issuance of a tokenised bond or sukuk. This endeavour will allow both parties to delve into the functions and utility of tokenisation, ranging from the use of smart contracts to custodial arrangements, consequently deepening understanding on the benefits and the risks involved with blockchain technology.Blockchain technology promises various characteristics such as programmability, transparency and accessibility, consequently, driving global interest towards tokenisation of underlying securities. In embracing such developments within the Malaysia market, the SC is looking to issue a guidance on tokenisation of securities to assist intermediaries in understanding and managing the associated risks while providing regulatory clarity.

In line with the SC’s objective towards developing forward-looking policies that support the future of the Malaysian capital market, the SC is collaborating with Khazanah Nasional to explore the issuance of a tokenised bond or sukuk. This endeavour will allow both parties to delve into the functions and utility of tokenisation, ranging from the use of smart contracts to custodial arrangements, consequently deepening understanding on the benefits and the risks involved with blockchain technology.

Special Feature 3

SCxSC Expansion: Driving Innovation for a Sustainable Capital Market

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.