Initiatives To Develop The Market
Since the mid-1980s, efforts were directed towards promoting a robust domestic bond market to act as a competitive source of long-term debt financing for the economy, as well as to provide investors with viable investment alternatives to suit their risk and return profiles. Major efforts taken are summarised as follows.

Definition of Government Securities


Jan 1989
Introduction of The Guidelines for the Issuance of Private Debt Securities to ensure orderly development of the market and to protect investors' interest.
Jan 1990

Code of Conduct and Market Practices for Scripless Trading in the Malaysian Securities Market was introduced to lay down the basic market rules.

Mar 1993

The setting up of Securities Commission following the Government's decision to develop a more focused regulatory authority over an increasingly sophisticated capital market.

Jun 1999

The National Bond Market Committee (NBMC) was established to provide the policy direction and to rationalise the regulatory framework for the development of the bond market. As an initial step to rationalise the regulatory framework, SC was appointed as the single regulatory authority for the supervision and regulation of the corporate bond market.

The members of NBMC consist of the Ministry of Finance, Economic Planning Unit of the Prime Minister's Department, Bank Negara Malaysia, Securities Commission, the Registrar of Companies and the Malaysia Stock Exchange.

Jul 1999

Code of Conduct and Market Practices for Malaysian Scripless Securities Market Under the Real Time Electronic Transfer of Funds and Securities (RENTAS) System were introduced.

Jul 2000

The Securities Commission (SC) became the single regulator for all fund raising activities, following the amendments to the Securities Commission Act 1983, the Companies Act 1965, the Banking and Financial Institutions Act 1989, the Futures Industry Act 1993 and the Securities Industry (Central Depositories) Act 1991. The SC is the approving and registering authority for prospectuses in respect of all securities other than securities issued by unlisted recreational clubs. The Registrar of Companies is responsible for the lodgment of prospectuses.

The Controller of Foreign Exchange issued the Exchange Control Guidelines on the Issuance of Private Debt Securities for Lead Arrangers to ensure compliance with the exchange control conditions/requirements under the new regulatory framework.

The Banking and Financial Institutions (Amendments of Definition of Deposit) Order 2000 has been gazetted with effect from 1 July 2000. With this Order, non-licensed institutions were allowed to enter into repurchase agreements (repo) transactions with licensed institutions under the Banking and Financial Institutions Act 1989.

Feb 2001

The Capital market Masterplan was launched. It sets the strategic position and future direction of capital market development for Malaysia.

Oct 2001

Rules on Fully Automated System for Issuing/ Tendering (FAST), Bond Information and Dissemination System (BIDS) & Real Time Electronic Transfer of Funds and Securities (RENTAS) were issued to replace the Rules issued in 1999.

Dec 2001

Issuance of Guideline on Securities Borrowing and Lending (SBL) Programme under RENTAS and Guidance Notes on Repurchase Agreement Transactions.

Oct 2002

Universal Brokers were allowed to participate in the unlisted debt securities in order to expand market players in the domestic bond market. Following this measure, Universal Brokers have been admitted as members of FAST, BIDS and RENTAS.

Mar 2003

The Malaysian capital market entered the final phase of its move from merit-based to disclosure base regulatory (DBR) framework for fund raising.

Dec 2003

SC announced the release of the Guidelines on the Offering of Structured Products.

Apr 2004

Introduction of a new interest rate framework to promote more efficient pricing of the spectrum of financial products being offered.

Bank Negara Malaysia liberalised its foreign exchange regulation allowing multilateral development banks (MDBs) or multilateral financial institutions (MFIs) to issue Ringgit denominated bonds in the Malaysia capital market. These bonds carry 0% risk weight under the risk-weighted capital ratio framework and allowed deduction from eligible liabilities for computation of statutory reserves requirements. For resident insurers, these bonds are qualified as low risk assets to support their margin of solvency.

July 2004

SC introduced the Guidelines on the Offering of Islamic Securities (IS Guidelines).

Sep 2004

The regulatory treatment for Cagamas securities was revised and Principal Dealers were also no longer required to bid for the primary issuance of Cagamas papers.

Oct 2004

Bank Negara Malaysia announced the usage of repos as a monetary policy instrument. This would encourage market participants to actively use repos as an alternative funding instrument, enhance trading strategies and strengthen risk management capabilities by encouraging banks to move towards collateralised inter-bank transactions

Oct 2005

Bank Negara Malaysia issued the Guidelines on Regulated Short-Selling of Securities in the Wholesale Money Market. The introduction of regulated short-selling is part of Bank Negara Malaysia's continuous effort to further develop a liquid bond market with an active repo and securities borrowing and lending. This would also promote better risk management by facilitating hedging of interest rate risk.




Infrastructure and Institutional Building

Dec 1986

Setting up of the national mortgage corporation (Cagamas Berhad) with the objective of promoting the development of a secondary market in Malaysia by purchasing mortgages from primary lenders and issuing debt securities.

Jan 1989

A Principal Dealer System was introduced in which market makers were appointed for certain classes of debt securities. The role of the principal dealers includes providing reasonable continuous 2-way price quotations for these papers to individuals, institutional clients and Bank Negara Malaysia.

Jan 1990

Confirmation of trades and settlement of cash and securities transfers were fully automated following the implementation of the electronic inter-bank funds transfer and scripless book-entry system (SPEEDS).

Nov 1990

The establishment of the first credit rating agency, Rating Agency Malaysia Berhad, to provide some guidance on the credit worthiness of the issuers.

May 1992

Mandatory rating for all issuance of domestic debt securities.

Mar 1994

Cagamas Berhad issued the first mortgage bond based on Islamic principles known as Cagamas Mudharabah bond.

Oct 1995

With the increasing number of ratings and to create a healthy competitive environment, the second rating agency, Malaysian Rating Corporation Berhad, was established.

Jan 1996

To enhance secondary activities, PDS is made scripless with clearing and settlement executed electronically through SPEEDS.

Jun 1996

Incorporation of the Institut Peniaga Bon Malaysia (Malaysian Institute of Bond Dealers) to represent the interest of participants in the bond market.

Aug 1996

Companies Act 1965 was amended to widen the investor's base and to simplify the requirements on the submission of prospectus.

Sep 1996

The primary market auction process for government securities was automated with the implementation of the Fully Automated System for Tendering (FAST). The automation has increased the efficiency in tendering and eliminated potential disputes that may arise from the bidding process.

Jul 1997

FAST was upgraded to include tendering of commercial papers and medium-term notes.

Sept 1997

Bond Information and Dissemination (BIDS) was set-up to promote awareness of the bond market to support both primary and secondary trading.

Oct 1997

The Banking and Financial Institutions (Amendments of Definition of Deposit) Order 2000 has been gazetted with effect from 1 July 2000. With this Order, non-licensed institutions would be allowed to enter into repurchase agreements (repo) transactions with licensed institutions under the Banking and Financial Institutions Act 1989.

Jul 1999

The deferred net settlement protocol (SPEEDS) was replaced with a real-time gross settlement (acronym RENTAS) to enhance liquidity and reduce settlement risks.

Oct 1999

FAST was upgraded to include tendering of short term interest bearing notes, money market deposits and Sanadat Mudharabah Cagamas securities.

Integration of FAST and BIDS to remove double entry of information and to make the systems more user-friendly.

Ringgit Bond Market Internet Homepage was launched to provide access of Malaysian bond market, FAST and BIDS information to general public.

Mar 2000

The Government Securities Auction Calendar for the year 2000 was announced in line with the Government's efforts to develop the capital market in Malaysia. This auction calendar would enhance the transparency and facilitate the formulation of investment strategies by the investors.

Oct 2001

Enhancement of FAST system to enable execution of repo transactions between Bank Negara Malaysia and approved interbank institutions (Fully Automated Repo System).

Dec 2001

RENTAS system was upgraded to include Securities Borrowing and Lending (SBL) Programme module and Repo Enhancement module.

Interface between FAST and RENTAS system to enhance the operational efficiency of both systems.

Sept 2004

Introduction of the Islamic Interbank Money Market website (http://iimm.bnm.gov.my) as a source of information on domestic Islamic financial instruments and to facilitate investment decisions and secure public confidence in their investment.

Oct 2004

Institutional Securities Custodian Program (ISCAP) was introduced by Bank Negara Malaysia as an infrastructure to release captive holdings of securities. The captive holding of MGS by institutional investors are circulated back to market participants via Bank Negara Malaysia repo operations and thus, enhance the overall liquidity in the bond market.

Jul 2005

In line with the developments in the capital market and technological advancement, the new Fully Automated System for Issuing/Tendering (FAST) was launched to replace the older version. The new version was developed as a web-based application, thus provide greater transparency to members and the public.




Fiscal and Financial Incentives

Jan 1989

Waiver from stamp duty for all instruments relating to the issue and transfer of company bonds, which issue has been sanctioned by Bank Negara Malaysia.

Jan 1992

Tax exemption on interest earned by individuals investing in bonds (other than convertible loan stock) issued by public companies listed on the Kuala Lumpur Stock Exchange.

Jan 1993

Tax exemption on interest earned by individuals investing in bonds (other than convertible loan stock) issued by a company rated by Rating Agency Malaysia Berhad or Malaysian Rating Corporation Berhad.

Oct 1994

Withholding tax for foreign investors on interest earned was reduced from 20% to 15%.

Jan 1996

Tax exemption on interest income received by unit trusts and listed closed-end funds from corporate bonds (other than convertible loan stock).

Jan 2000

Waiver from stamp duty for all instruments relating to the issue and transfer of private debt securities, which issue has been approved by Bank Negara Malaysia or the Securities Commission.

Jan 2000

Stamp duty exemption on the instruments executed on or after 30 October 1999 but not later than 31 December 2000 for the purpose of securitisation.

Jan 2001

Transactions relating to the issuance of asset-backed securities are exempted from stamp-duty.

Jan 2003

Tax deductions for expenses incurred in issuing any Islamic PDS that adopts either the mudharabah, musyarakah or ijarah principles, for five years, commencing from 2003.

Sep 2003

Establishment of a tax neutral framework for securitisation transactions and a 5-year tax deduction on expenses incurred in the issuance of ABS.

Sep 2004

Abolishment of the withholding tax on interest income derived by non-resident companies from:

  • Ringgit denominated Islamic securities and debentures, other than convertible loans stocks, approved by Securities Commission.
  • Securities issued by the Government of Malaysia.
This would attract foreign participation and widen the investor base in the domestic market.



Development Initiatives

Sep 2004

The issuance of Islamic Treasury Bills to add further depth to the development of Islamic securities market.

Oct 2004

The first issuance of Residential Mortgage Backed Securities (RMBS) by Cagamas MBS Berhad, a wholly owned subsidiary of Cagamas Berhad which was backed by Government staffs' housing loans. The securitisation represents a new strategic initiative to broaden the domestic bond market with a new asset class whilst simultaneously creating a benchmark yield curve for long-term asset backed securities bonds.

Nov 2004

Issuance of a new asset class, the Asian Development Bank (ADB)'s Putra bonds, marking a significant development in the domestic bond market. The RM400 million fixed rate bonds was the first issued by a foreign entity and a supranational. The bonds generated strong demand with total bids amounting to more than RM2.6 billion or 6.5 times the issue amount.

Dec 2004

Issuance of the International Finance Corporation (IFC)'s Wawasan Islamic bonds. The MYR 500 million ‘Wawasan Bonds' (approximately US$132 million equivalent) three-year bonds were issued as Bai Bithaman Ajil Islamic Securities. IFC is the first supranational to issue Islamic securities in the Malaysian market, and first supranational to issue domestic Islamic bonds in any market.

Apr 2005

Further liberalisation of foreign exchange administration rules to facilitate non-residents and residents cross-border investments. Income from investment in Ringgit denominated debt securities is exempted from withholding tax.

Apr 2005

Repo Facilities for principal dealers (PDs) was introduced with main purpose to facilitate market making activities for PDs and to promote competitive pricing. Repo auction of benchmark government securities for PDs provide an avenue for PDs to obtain government securities if they are caught short in the process of performing market-making function.

May 2005

Issuance of RM760 million Ringgit-denominated Wawasan Bonds by the International Bank for Reconstruction and Development (IBRD), also known as The World Bank. The issuance would contribute to further broaden and develop the country's Islamic capital market.

Jul 2005

First issuance of 20-year MGS amounting to RM1billion. Given the current excess liquidity, the longer dated MGS attracted good demand from investors. It will also lengthen the tenure of the MGS yield curve.

Jul 2005

Daily indicative yield to maturity (YTM) for Government securities (conventional & Islamic) was implemented as to provide continuous market value information on Government securities to the market.
Publication of Indicative YTM on private debt securities based on ratings and Selected Papers remain on a weekly basis i.e. on the 7th, 14th, 21st and end of every month.

Aug 2005

The issuance of RM2.05 billion Islamic Residential Mortgage-Backed Sukuk Musyarakah (IRMBS) by Cagamas MBS Berhad. The bond is backed by a pool of the Government's staff Islamic home financing. The introduction of IRMBS added new asset class in the domestic market and demonstrated Government's continuous and innovative effort to broaden and deepen the Islamic capital market.

Feb 2006

The inaugural issuance of RM400 million Bank Negara Malaysia Sukuk Ijarah, which is a new Islamic monetary instrument based on the Al-Ijarah or "sale and lease back" concept that is globally accepted. The issuance of sukuk Ijarah added diversity of monetary instruments used by Bank Negara Malaysia in managing liquidity in the Islamic Money Market. The introduction of sukuk Ijarah reflects the continuous efforts by Bank Negara Malaysia to spur product innovation and the development of products to meet the diversified requirements of domestic and international investors. This will facilitate the development of a vibrant and comprehensive Islamic bond market in Malaysia as well as to promote Kuala Lumpur as an international Islamic financial hub.

Last Updated : 26/01/2008 20:51 PM