Business News

Saturday, 3 December 2016

Bank Negara the market maker?

IT has been a long time since we saw the ringgit non-deliverable forward (NDF) market or better known as the offshore market, close weaker than the onshore market.

First signs emerged yesterday afternoon and before the day was over it became evident as the ringgit closed at RM4.45 against the dollar in the domestic market while RM4.44 in the offshore market.

The reason is because the traders were closing the positions in the offshore market and taking positions in the onshore market. In the onshore market or also known as the domestic market, only Bank Negara has the supply of US dollars.

So in the next few months, dealers said that it is the central bank that will determine the exchange rate for the US dollar-ringgit trades. It effectively will be the market maker for the US dollar-ringgit trades.

It should have the ammunition to play the market maker role for now.

This is because the central bank’s reserves are expected to increase from Monday as the latest ruling requires exporters to convert 75% of their new proceeds to the ringgit.

Previously, exporters tend to keep their currencies in US dollar as the view they took was that over the longer term, the ringgit will depreciate against the dollar.

To incentive the exporters, Bank Negara has announced a fairly attractive deposit rate and allowed them to go into active and free hedging for their foreign currency requirements of up to six months.

In the last three weeks, the central bank has announced several measures to reduce the volatility of the ringgit and increase the demand for the currency.

The Financial Markets Committee objective is to create a foreign exchange market onshore. The next one month or two will be crucial to determine if its move to reduce the volatility of the ringgit reduces.

Importance of timely disclosures

OVER the last week a number of cases have surfaced where the regulators have taken steps to remind the market of the importance of timely disclosures.

Timely disclosures are important to ensure a fair market place for the trading of stocks and shares.

It is often not an easy task to manage the dissemination of information. On the one hand, company officials are encouraged to promote their companies to the investment community. This is done through analyst and investor briefings. In such events there is a tendency to delve out too much information, especially when questioned by the participants within those closed door meetings.

In any case, company officials should always strive to resist the temptation to divulge material information in such briefings before making those announcements to the public. Private investor meetings should focus on explanations on the company’s strategy and rationale for decisions and for the investors to get a better sense of who the management of the company is. It is not to be used as a means for a select group of investors to get privileged information.

When contacted, the Securities Commission (SC) said that rest assured it was looking into the issue of timely disclosures and is taking this matter very seriously.

“The SC is aware of the matter and is looking into it. As in any other cases, the SC will take the necessary action where there are breaches of the securities law,” it said.

Meanwhile, new developments are taking place in the world of research that is likely to make it even more challenging for regulators to assess how company information is being disseminated.

Recall that this week, Societe Generale announced that it will use Singapore-based fintech company Smartkarma to provide third-party Asian equity research to its institutional clients.

The agreement is the first of its kind in Asia where a bank has effectively outsourced equity research provision to independent third parties. This signals that investment banks are beginning to radically rethink their research franchises amid new rules that some analysts say could result in a 30 per cent decline in global research spend.

A fintech push is needed

DISRUPTIONS in the banking and financial sector that are forcing incumbents to revamp their business models are expected to yield positive outcomes for the consumers.

Increasing competition in the sector, driven by the penetration of financial technology (fintech) firms, widens available product options and lowers costs for consumers. In the long run, this could eventually lead to better financial inclusion among Malaysians.

A total of 82% of Malaysian financial institutions (FI) saw fintech as a threat to their businesses, according to a recent PricewaterhouseCoopers (PwC) survey. In contrast, only 67% of the financial institutions globally saw FinTech as a threat.

Despite the apparent unease in the robust growth of FinTech, it is worrying that 4.5 out of the 10 surveyed FIs have no plan to invest in fintech in the next one year.

More worrying is the finding of the report which revealed that almost half or 48% of the FIs only plan to invest less than 10% of their information technology expenditure in fintech, or none at at all.

That said, domestic FIs should not be seen as totally oblivious to the rapid changes taking place within the banking and financial sector. Fifty-nine per cent of FIs are already dealing with fintech companies either by engaging in joint partnerships and acquiring fintech companies.

Malaysian FIs need to jump on the FinTech bandwagon without much hesitation, as fintech is already eroding Malaysian banks’ share of customers.

A report by Bain & Company notes that Malaysian banks lose about 50% of new banking products sales to a competing bank or fintech firm.

The research revealed that primary banks usually lose higher-value products due to the competitors’ relatively simple products lines and streamlined user experiences.

Have enough measures been taken locally?

Malaysia is still not seen as a conducive environment for fundraising, by many newcomers into the fintech circle. With lack of investment funding, many start-ups could fail to take-off and grow big.

Regulation uncertainty also merits great concern as lack of clarity in regulations may hamper many firms in introducing better services for the consumers.

Both FIs and the authorities need to go all out, in their drive to encourage fintech growth in Malaysia.

Globally, countries have intensified efforts to boost fintech through grants and innovation laboratories. There is no time left to wait-and-see.

Tags / Keywords: short , position , dec 3

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