Frequently Asked Questions On Retail Bonds And Sukuk - Regulatory FAQs

Frequently Asked Questions On Retail Bonds And Sukuk

Why is the Securities Commission Malaysia (SC) introducing the retail bonds and sukuk framework?
The retail bonds and sukuk framework is intended to meet retail investors’ demand for access to a wider range of investment products. This is also in line with the SC’s Capital Market Masterplan 2 initiative to promote greater retail participation in the bond and sukuk market.Access for retail investors to bonds and sukuk was largely available through bond and sukuk unit trust funds and exchange traded funds. With the retail bonds and sukuk framework, retail investors will now have direct access to bonds and sukuk.

Issuers will also now have access to a larger pool of investors.
What are the key components of the retail bonds and sukuk framework?
Retail bonds and sukuk may be issued and traded either on the exchange (Bursa Malaysia) or over-the-counter (OTC) via appointed banks. In developing this framework, the SC sought industry input and feedback, and took into consideration practices adopted in other countries. In this regard, the framework is consistent with international practices and development initiatives.The broadening of access to the retail market is supported by an investor protection framework comprising:
A robust disclosure regime which includes prospectus and continuous disclosure requirements and checks and balances in the form of a trustee and trust deed;
Mandatory credit rating for all bonds and sukuk that are offered to the retail market by a registered credit rating agency; and
Investor education initiatives to enhance investor understanding and knowledge of investing in bonds and sukuk.
Certain categories of issuers may be exempted from some of these requirements e.g. Malaysian Government or government guaranteed issuances.
Who can issue bonds and sukuk to retail investors?
The retail bonds and sukuk market will be introduced in phases to provide retail investors time to gain the necessary understanding and familiarity with investing and trading in bonds and sukuk.Under the first phase, the eligible issuers are the Malaysian Government and any company whose issuances are guaranteed by the Malaysian Government. Issuances by these issuers will naturally be subject to their own funding needs and requirements.

The second phase of the retail bonds and sukuk framework will be expanded to include the following issuers:
A public company listed on Bursa Malaysia (PLC);
A bank licensed under the Banking and Financial Institutions Act 1989 or Islamic Banking Act 1983;
Cagamas Berhad; and An unlisted public company whose bond and sukuk issuance is guaranteed by Danajamin Nasional Berhad, Credit Guarantee and Investment Facility or any of the eligible issuers above.
The issuance of the relevant regulations and guidelines for the second phase is targeted for January 2013.
Can PLCs continue to issue loan stocks in the first phase of the retail bonds and sukuk framework?
Yes, they can under the existing regulatory requirements.
How would the current loan stocks listed and quoted on Bursa Malaysia fit into the retail bonds and sukuk framework?
Those currently listed and quoted on Bursa Malaysia will continue to be traded under their current category as loan stocks, until expiry.
Where can I get information on the retail bonds and sukuk offered?
For retail bonds and sukuk, issuers are required to provide retail investors with a prospectus and would also need to meet with the relevant continuous disclosure requirements. Investors can access information on bonds and sukuk that they have invested in through Bursa Malaysia’s website, banks from whom they have purchased the bonds and sukuk, media announcements that may be made from time to time and any other platform as may be designated by the SC.Where the bonds and sukuk are issued or guaranteed by the Malaysian Government, they would be exempted from the prospectus requirement. However, where they are issued and traded on Bursa Malaysia, they would need to comply with the relevant continuous disclosure requirements.

Making an informed investment decision
As an investor you should not make a decision to invest unless you have read and understood the prospectus. The prospectus is an important document as it will contain all the salient information on the bonds or sukuk issued to you, including the Principal Terms and Conditions and risk factors related to the issuance. Therefore it is in your interest to ask for a copy of the prospectus.

Monitoring your investment
Investors should be proactive in monitoring your investment. In this regard, you should regularly check the disclosures by the issuer and monitor any news reports relating to the issuance or the issuer. Where the issuer is a public listed company, you may also find more detailed information on Bursa Malaysia (www.bursamalaysia.com) and on the company’s website.

Other useful websites include:
Bond Info Hub (www.bondinfo.bnm.gov.my)
RAM Rating Services Berhad (www.ram.com.my)
Malaysian Rating Corporation Berhad (www.marc.com.my)
Can I purchase retail bonds or sukuk OTC and sell them on the exchange and vice versa?
No. You can only sell your retail bonds or sukuk on the same platform through which they were purchased.

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