Definition of FMIs
An FMI is defined as a multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives or other financial transactions. In the capital market, we recognised Bursa Malaysia Securities Clearing Sdn Bhd, Bursa Malaysia Depository Sdn Bhd and Bursa Malaysia Derivatives Clearing Berhad as FMIs.
Bursa Malaysia Securities Clearing Sdn Bhd and Bursa Malaysia Derivatives Clearing Berhad are approved as clearing houses pursuant to Section 38 of the CMSA, whilst Bursa Malaysia Depository Sdn Bhd is approved as the central securities depository pursuant to Section 5 of SICDA.
The scope of responsibilities, powers and authorities of the Securities Commission (SC), including the oversight over the FMIs, is clearly set out in the Securities Commission Act 1993 (SCA), Capital Markets & Services Act 2007 (CMSA) and Securities Industry (Central Depositories) Act 1991 (SICDA).
SC’s oversight objectives on the FMIs is to ensure the efficient provision of clearing house facilities in relation to securities and derivatives contracts that are cleared through its clearing facilities and depository services in relation to securities deposited with the central depository; and the proper regulation and supervision of its participants, having due regard to the protection of investors and public interest policy of fostering transparency, enhancing safety and mitigating and managing systemic risk.
SC’s oversight activities are also focused towards ensuring that the operation of the FMIs is in accordance with the requirements set by the SC and benchmarked against international standards.
The oversight approach undertaken by the SC includes the following:
- On-site audit and supervisory visits;
- Off-site monitoring and supervision;
- Review of the reporting requirements;
- Annual dialogue with the Board of Directors and
- Regular engagements with the management of the FMIs.
Compliance with international standards
The Committee of Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) jointly developed the Recommendations for Securities Settlement Systems in 2001 and subsequently published the Recommendation for Central Counterparties in 2004, as the internationally recognized risk-management standards for securities settlement systems and central counterparties.
- Recommendations for Securities Settlement Systems (RSSS)
- Recommendations for Central Counterparties (RCCP)
In April 2012, the CPSS and IOSCO issued the Principles for Financial Market Infrastructures to replace the RSSS and RCCP. The report harmonizes and, where appropriate, strengthens the existing international standards for central securities depositories, securities settlement systems, and central counterparties. The report also incorporates new standards and additional guidance for trade repositories, which have emerged as an important category of financial market infrastructures. The Financial Sector Assessment Program conducted on these FMIs in 2012 was based on these principles.
Co-operative oversight arrangements
Cooperation with Bank Negara Malaysia
The SC has entered into an MoU with Bank Negara Malaysia on the oversight of payment and settlement systems to ensure the respective authorities mandates are achieved since 2007. The MoU covers the framework of cooperation between SC and BNM in the performance of the regulatory responsibilities in relation to any system for the clearing, transfer or settlement of securities. This includes:
- Exchange of information;
- Confidentiality and use of information;
- Supervisory and investigation of clearing houses; and
- Coordination and consultation.