MEDIA RELEASE
Kuala Lumpur, 21 December 2017

The SC Initiates aFINity Innovation Lab for Alternative Trading System

The Securities Commission Malaysia (SC) today announced that parties interested in establishing and operating an Alternative Trading System (ATS) in Malaysia can apply to participate in regulatory sandbox sessions under the SC’s FinTech Innovation Lab (aFINity – alliance of FinTech community). This follows the Budget 2018 announcement on the introduction of ATS in the Malaysian capital market.

The SC’s Innovation Lab will commence from 2 January to 30 March 2018. Since 2015, the SC has pioneered the regulatory sandboxing approach where regulation is imposed on a graduated scale in line with the growth of the market and complexity of the product. The Lab allows the SC to discuss and provide feedback to innovative business ideas and concepts, and to explore proof of concept solutions designed to meet specific industry needs.

During the regulatory sandbox sessions at the Lab, interested parties are expected to describe the details of its ATS proposal and provide the SC with information on the type of ATS, the features of the proposed market which include the products to be traded, its users, operating rules and procedures, post-trade arrangements and the value proposition to the overall capital market. A description of the required information can be found below.

Feedback provided to the SC during the engagement sessions will be taken into consideration in formulating the SC’s regulatory framework for ATS.

Interested parties who wish to seek an engagement session with the SC may write in to [email protected].

SECURITIES COMMISSION MALAYSIA


Interested parties for ATS should describe how it intends to satisfy the following parameters during the engagement session

Parameters Discussion Points
Value Proposition
  • Value proposition of the proposed ATS to the overall market
  • Impact of ATS to the overall market, including existing market players, issuers and investors
  • Ability to fulfil fit and proper requirements
Type of product to be considered
  • Cross-trading of existing listed shares
  • Capital Market Products e.g. Derivatives, Bonds, ETFs, Unit trusts, and any other products as approved by SC
  • Digital currency
  • Primary market issuance
Capabilities
  • Technological and human resource skills, expertise and capacity to satisfy obligations on a continuous basis
  • Ability to monitor compliance of users with the operating rules
  • If cross-trading existing listed shares, arrangements with relevant exchanges for the products to be traded
Operating rules and procedures
  • Have in place sufficient operating rules and procedures to operate a market in fair, orderly and transparent manner
Fees
  • Proposed fees and charges
Clearing and settlement
  • Sufficient arrangements for transaction clearing and settlement, e.g. clearing with Bursa, self-clearing, appointment of 3rd party clearing participant etc
Market users
  • Direct market access by investors/ traders/ agents/ institutions, or
  • Intermediation by brokers
  • Membership requirements
Exit strategy
  • Arrangements for orderly exit and cessation of operations, should the operator fail
Market integrity principles For all types of ATS:

  • Fair access to markets / information
  • Order handling rules
  • Error trade/ trade cancellation policy
  • Volatility control mechanism
  • Transparency of trading
    • Pre trade
    • Post trade
  • Order routing practices
  • Matching algorithm/ price discovery methodology/ fair pricing
  • Market intervention mechanism

In addition, specifically for cross-trading of existing listed shares:

  • Best execution
  • Coordination of time, identifiers and tick size
  • Consolidation of trading information
  • Contribution to compensation fund