Malaysia mulls short selling expansion
29 March 2017 Kuala Lumpur
Image: Shutterstock
The Central Bank of Malaysia is considering expanding the country’s short selling and repo frameworks in a bid to improve market liquidity.
In a recent roundtable hosted by the central bank’s financial markets committee, 30 delegates representing domestic and institutional financial entities discussed the health of the country's bond market.
Proposals were tabled for further expansion of the short selling framework to include bonds, as well as increasing participation in the repo, bond swap and interest rate swap markets.
In a statement on the discussion, the Central Bank of Malaysia said: “The further development of onshore hedging will complement the liquidity in the secondary market, particularly on the longer end of the yield curve.”
The group also examined using repos as an alternative liquidity management tool and funding instrument for financial institutions.
The annual trading volume has been growing since the Central Bank of Malaysia liberalised short selling and reverse repo operations in 2015.
The trading volume of repos averaged RM 195 billion (USD 44.18 billion) per annum since 2012. According to the central bank, the roundtable highlighted the need to review existing regulatory frameworks to allow more diverse participants in the repo market.
Adnan Zaylani Mohamad Zahid, assistant governor at the Central Bank of Malaysia, said: “The next phase of development of the onshore bond market requires support and commitment from issuers, investors and market makers to improve liquidity, add breadth to financial market and support issuances for government and corporate bonds”
“The focus should be on diversifying the investor base, having a stable composition of investors and increasing transparency that will enhance market stability.”
In a recent roundtable hosted by the central bank’s financial markets committee, 30 delegates representing domestic and institutional financial entities discussed the health of the country's bond market.
Proposals were tabled for further expansion of the short selling framework to include bonds, as well as increasing participation in the repo, bond swap and interest rate swap markets.
In a statement on the discussion, the Central Bank of Malaysia said: “The further development of onshore hedging will complement the liquidity in the secondary market, particularly on the longer end of the yield curve.”
The group also examined using repos as an alternative liquidity management tool and funding instrument for financial institutions.
The annual trading volume has been growing since the Central Bank of Malaysia liberalised short selling and reverse repo operations in 2015.
The trading volume of repos averaged RM 195 billion (USD 44.18 billion) per annum since 2012. According to the central bank, the roundtable highlighted the need to review existing regulatory frameworks to allow more diverse participants in the repo market.
Adnan Zaylani Mohamad Zahid, assistant governor at the Central Bank of Malaysia, said: “The next phase of development of the onshore bond market requires support and commitment from issuers, investors and market makers to improve liquidity, add breadth to financial market and support issuances for government and corporate bonds”
“The focus should be on diversifying the investor base, having a stable composition of investors and increasing transparency that will enhance market stability.”
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