KUALA LUMPUR: The digital assets exchange (DAX) will now be classified as a recognised market, putting it on par with equity crowdfunding and peer-to-peer financing.
The Securities Commission (SC) has introduced a new framework to facilitate the trading of digital assets in the country.
A DAX operator must be a locally incorporated company with a minimum paid-up capital of RM5mil prior to the commencement of operations. The SC will also reserve the right to impose additional financial requirements if it deems the market size too big or the system being too risky. All these are included in the revised Guidelines on Recognised Markets under chapter 15.
DAX operators will also have to fulfil certain criteria such as governance, safeguarding client assets, obligations and market integrity.
They are required to maintain up-to-date records of investors, monies and digital assets held and have segregated trust accounts for receiving and paying out monies maintained in licensed financial institutions.
“The regulation we have here is to collaborate the innovation and protection of investors, the reason being that digital assets have become the flavour since last year and there have been a lot of concerns such as them being used for scams or their platforms being subjected to hacking.
“We want to ensure there is a safe place for people to trade digital assets, and the requirements we have put in place are to ensure that DAX operators are not fly-by-night operators,” SC representatives told a media briefing.
The regulator wants clients’ assets to be properly protected and to ensure that operators do not encourage any kind of manipulation, money laundering or illegal activities.
Under the new guidelines, public companies planning to be a DAX operator need to have at least one independent director and are required to appoint a responsible person as the contact point with the SC, should the regulator engage the operators for any issue.
DAX operators are prohibited from providing financial assistance or margin trading to investors.
Operators are also required to manage any excessive volatility and a system must be in place to ensure fairness and no preferential treatment for sophisticated investors.
They must also have a business continuity plan that addresses events that may pose significant risk of disrupting operations or winding down.
“Investors will still have a cash position or asset position with you when you are in the process of winding down. They have to let us know their process of allowing investors to unwind their positions.
“This is to ensure an orderly exit in case the operator is unable to continue. It is also part of the safeguard to build investor confidence.
“They also have to satisfy the SC that they are able to operate in a fair, orderly and transparent manner,” the spokesmen said.
Under the guidelines, the SC may also impose a fee or levy on all transactions conducted on the DAX.
Among other market integrity provisions that DAX operators have to comply with are disclosing information about their market structure, order types, adequate arrangements and processes to manage excessive volatility of its market, error trades and systems error.
SC chairman Datuk Syed Zaid Albar said the new framework was part of the SC’s efforts to promote innovation, while ensuring investor protection in the trading of digital assets. “While there is a framework to facilitate the trading of digital assets, investors are reminded to be mindful of the risks such as sudden price fluctuations and liquidity risks,” he said.
Any person who is interested to operate a digital asset platform, including those operating within the current transitional period, have to submit an application to the SC by March 1.
Meanwhile, separate guidelines will be issued on the offering of digital assets via an initial coin offering (ICO) by the end of March.