KUALA LUMPUR: Bank Negara has introduced six new measures that could potentially avert Malaysia’s disqualification from FTSE Russell’s World Government Bond Index (WGBI).
The new measures, aimed at enhancing the country’s market liquidity and accessibility, are part of the central bank’s ongoing initiatives to broaden and deepen the Malaysian financial market.
According to Bank Negara governor Datuk Nor Shamsiah Mohd Yunus, the new measures would partly address FTSE Russell’s concerns about Malaysia’s position in the WGBI, especially with regard to the country’s market accessibility.
“We talk to all index providers on a yearly basis. We will take necessary measures to address their concerns and the introduction of the six new initiatives will address FTSE Russell’s concerns,” she said at a briefing yesterday.
Under the new measures, Bank Negara will seek to enhance repo market liquidity and flexibility. This will be done by further increasing the availability of off-the-run bonds to be borrowed via repo for market-making activities.
“The repo guideline will be reviewed accordingly to allow, among others, extending the repo tenor beyond one year,” said Bank Negara.
In addition, the central bank will also enhance the delivery mechanism for the Malaysian Government Securities futures settlements, in collaboration with the Securities Commission, Bursa Malaysia and key market players.
Meanwhile, in order to further enhance onshore market liquidity and accessibility, trust banks and global custodians will be allowed to apply under the dynamic hedging programme to undertake dynamic hedging on behalf of their underlying clients.
For context, the dynamic hedging programme was introduced in December 2016 to provide an avenue for non-resident investors to actively manage their foreign-exchange (forex) exposure onshore.
Moving forward, registered institutional investors will be able to enter into forward contracts to buy the ringgit beyond the current 25% (of underlying assets) threshold, upon approval by Bank Negara. This measure is expected to facilitate the forex risk management.
Bank Negara also said that forex transaction and documentation processes will continue to be improved and simplified.
“In this respect, a standard documentation guide for forex transactions has been developed by the industry and will be circulated via the Association of Banks Malaysia for reference by market participants,” it said.
Under the sixth measure, ringgit liquidity will be ensured beyond local trading hours.
“Bank Negara will continue to facilitate the market-making capacity of the 156 Appointed Overseas Offices (from 21 banking groups operating in 36 countries) to ensure sufficient access to ringgit prices,” it said.