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Bank Negara Fines Local Bank Over Fixing Misconduct, Claims NDF Problem Solved

Malaysia’s
central bank, Bank Negara, says it has initiated enforcement actions against an
un-named local bank relating to dealers’ misconduct involving the fixing of the
USD/MYR exchange rate.

Bank Negara
says, “The finding indicates that there were communications with traders from
other foreign financial institutions which included inappropriate references to
the fixing rate submission process. In this regard, the Bank has commenced the
due process as stipulated under the Financial Services Act. 

“The Bank
views such reporting breaches seriously, especially on financial institutions’
involvement with offshore ringgit NDF market or any activities that relates
towards market manipulation and hence, will not hesitate to take appropriate
enforcement actions against any other financial institutions which have
breached provisions under the FSA,” the central bank adds. “The enforcement
actions may include the imposition of monetary penalties, issuance of a written
order to comply, making public reprimands and issuance of a written order to
mitigate or remedy such breaches.”

Bank Negara
is waging a campaign against market activities in the ringgit, in November it
issued a warning to local banks
warning them against trading in the
offshore NDF market.

This was
followed at the end of November by the admission by ANZ and Macquarie Bank that
individual traders had been found to have attempted
to manipulate the USD/MYR fixing
.

The central
bank’s efforts have had little impact on the MYR, which had continued to weaken
on FX markets, with USD/MYR hitting a new post-Asian crisis high of 4.4810 on
December 28 – the highest for the exchange rate since January 1998.

That said,
the Financial Markets Committee (FMC), which operates under the auspices of
Bank Negara, has claimed the “disruptive influence from the non-deliverable
forward (NDF) market has also subsided”.

The FMC
says in a statement on the Bank Negara website, “Against the backdrop of a
stronger USD and continued uncertainties, ringgit intraday movement averages
around 90 points compared to 228 points in the month of November and a high of
600 points (measured through difference between the highest and lowest exchange
rate in the interbank market during the day).

“FX flows
comprise supply and demand from all major participants, including the
exporters/importers, portfolio related and direct investments,” it adds. “As
the demand and supply of the USD/MYR realigned, onshore FX market will further
stabilise and will lead to better cost of hedging and facilitate businesses in
managing their FX risks.”

The
committee adds that the market has “responded positively” to the fund manager
hedging framework, which allows registered fund managers to actively manage up
to 25% of their invested portfolio. It reveals that to date, 10 fund managers,
consisting of both residents and non-residents, have registered with Bank
Negara Malaysia with a total asset under management (AUM) eligible under the
framework of RM41.8 billion.

“Fund
managers have started to utilise this flexibility,” the FMS says. “In the
secondary bond market, there continue to be two way flows from both resident
and non-resident investors with average bid-offer spread of three basis points
for benchmark securities. Trading activities remain robust with average daily trading
volume of RM4.5 billion and month-to-date volume of RM52.8 billion.

“FMC,
together with Bank Negara Malaysia, would like to reiterate the commitment to
promote a conducive financial market environment and will continue to work with
market participants in forging the way forward.”

Colin_lambert@profit-loss.com

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Colin Lambert

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