Bank Negara, Malaysia’s central bank, has launched a consultation programme aimed at delivering standards for providers of multi-dealer FX and money market electronic platforms, including inter-dealer brokers. The bank has released an Exposure Draft and invited feedback before July 15 2019.
The background to the proposed regulation is the continued scrutiny of offshore access to domestic Malaysian markets, two years ago the central bank issued a warning that offshore trading of the ringgit contravened Malaysian law. It has also repeatedly clamped down on onshore participants accessing the offshore NDF market, although it stresses in the latest document that the proposed rules do not apply to single dealer platforms, rather it wants to ensure that anyone operating a multi-dealer facility first gains approval from the central bank.
While acknowledging the benefits that electronic trading platforms bring to markets, Bank Negara also notes that the proliferation of platforms offering innovative solutions “significantly underscores the importance of instituting risk management processes, given that the various dimensions of risk often occur on an ex-post basis, rendering the integrity of the service provider to be of utmost priority”.
It adds that against the backdrop of increased electronification within the wholesale financial markets and in order to maintain the orderly condition and integrity of the financial market, it is critical that only operators of electronic trading platforms which have adequate operational and governance capacity are allowed to offer their services to the Malaysian onshore market participants. Based on the Code of Conduct for Malaysia Wholesale Financial Markets, market participants in the money and foreign exchange markets are allowed to offer such services only upon being duly approved by the Bank.
The latest policy document sets out the approval requirements on platform operators to be eligible to provide their services in the wholesale financial markets in Malaysia and the internal control requirements applicable on approved platform operators to safeguard the system integrity and data confidentiality of such platforms. It also imposes requirements on approved platform operators to put in place or maintain appropriate internal governance, policies and procedures in providing their services.
If operators are approved they will granted a three year permit to operate the platform, that can be applied for at least 90 days in advance of expiry. Operators are also instructed to submit an independent third party audit of their platform within three months of commencing operations.