This Technical Note seeks to clarify SC’s application of the Guidelines on Private Debt Securities (PDS Guidelines) and the Guidelines on Sukuk (Sukuk Guidelines) to PDS and Sukuk proposals that are structured on a non-tradable and non-transferable basis. The SC does not intend to regulate financing arrangements that are essentially a loan whether structured on a Shariah-compliant basis or otherwise.  This exclusion is consistent with the exemption of loans from the definition of ‘debenture’ in the Capital Markets and Services Act (CMSA).

In this regard, PDS and Sukuk that are issued on a non-tradable and non-transferable basis will not fall under the PDS and Sukuk Guidelines if –

a) The PDS and Sukuk are only subscribed by –
i. the Principal Adviser for the proposed issue;
ii. the Arranger/Manager for the proposed issue; or
iii. the Principal Adviser and Arranger/Manager for the proposed issue; and
b) If the lending of monies or provision of finance is in the ordinary course of business of the subscriber(s).

Nevertheless, the SC notes that given the structure of the Malaysian bond and sukuk markets where banks remain significant participants in the role of investors, the SC will continue to regulate debentures and sukuk where the investor(s) are not also the Principal Adviser or Lead Arranger/Manager.

Frequently Asked Questions (FAQs) On The Application Of SC’s Guidelines In Relation To Non-Tradable And Non-Transferable PDS And Sukuk:

1. XYZ Investment Bank is the Principal Adviser and ABC Bank is the Arranger of a bond that is issued on a non-tradable and non-transferable basis.  Is SC’s approval required for the bond issue if:
a) XYZ Investment Bank is the sole subscriber?
SC’s approval is not required for the bond issue as it is solely subscribed by the Principal Adviser.
b) ABC Bank is the sole subscriber?
Given that the bonds are to be solely subscribed by the Arranger for the bond, SC’s approval is not required for the bond issue.
c) XYZ Bank and ABC Bank are the only subscribers to the bond?
SC’s approval is not required for the bond issue in view of the fact that the bond will only be subscribed by the Principal Adviser and the Arranger.
d) XYZ Bank and ABC Bank subscribe to the bond together with another investor?
As the investor (other than XYZ Bank and ABC Bank) is not the Principal Adviser or Arranger for the bond, the bond issue requires SC’s approval.
2. If the subscriber is an asset management company, would the bond issue require SC’s approval?
Yes, it would.  The asset management company is not in the business of lending monies or providing finance.
3. Would this policy also apply to Islamic medium term notes that are issued under the programme and are issued on a non-tradable and non-transferable basis?

Yes, this policy position will also apply to each issue of securities under a programme.  The Lead Arranger must ensure that the Lead Arranger and the Principal Adviser, as the case may be, must not be the only subscribers for any issue under the programme that has been approved by the SC.

4. Does the term “provision of finance” also include any other financing arrangement or investment which is structured in compliance with Shariah principles?
Yes, the term “provision of finance” also includes any financing arrangement or investment which is structured based on any applicable Shariah principles.