SC Introduces Guidelines on the Offering of Structured Products
The Securities Commission (SC) is pleased to announce the release of the Guidelines on the Offering of Structured Products (SP Guidelines) today. The introduction of these guidelines will facilitate universal brokers, merchant banks, commercial banks including Islamic banks and performance-guaranteed Special Purpose Vehicles established by any of the above-mentioned institutions to issue “structured products” tailored to the needs of sophisticated investors.
The SP Guidelines will facilitate the origination of sophisticated products to meet the needs of an increasingly sophisticated Malaysian capital market. The guidelines were formulated after extensive consultation with industry professionals. It will complement efforts made under the Capital Market Masterplan (CMP) to widen the range of products and services available to issuers and investors and to provide intermediaries with more flexibility to offer greater value to their customers.
Structured products are hybrid products commonly issued as Notes backed by the performance of underlying secondary market reference assets such as equities, bonds, indices, commodities and currencies or a combination of such assets. The issuer’s obligation to repay funds raised from the Notes issued is fully dependent on the performance of the underlying reference assets. An option contract is usually embedded into the structure of these Notes. Examples of products that fall under the SP Guidelines are Equity Linked Notes, Bond Linked Notes, Index Linked Notes, Currency Linked Notes, Commodity (Contracts) Linked Notes and Credit Linked Notes.
These products provide eligible investors with a more diverse investment alternative which may potentially yield higher returns. Commensurate with the higher risk potential and complexity of structured products, the guidelines also incorporate investor protection features. To ensure investor protection, the SP Guidelines impose additional information disclosure requirements on the issuer and its adviser, where applicable, to highlight risk factors of investing in structured products. Investors are advised to read and understand the information disclosed and are required to confirm receipt of such disclosure. Eligible investors for structured products are limited to sophisticated or high net worth parties referred to in Schedules 2 and 3 of the Securities Commission Act 1993.
Issuers offering Islamic structured products requiring the SC’s approval must appoint an independent Syariah adviser approved by the SC and must ensure adoption of Syariah principles and concepts that are consistent with those approved by the SC’s Syariah Advisory Council.
The SP Guidelines exempt certain non-tradable structured product transactions from obtaining prior approval from the SC, as set out in paragraphs 2.03 and 2.04. Nevertheless, such transactions must still adhere to the requirements to obtain other regulatory approvals, to submit quarterly post-issuance notification to the SC and to adopt fair dealing best practices.
The SP Guidelines are available on the SC’s website here.