Capital Markets Malaysia

FINANCING THE FUTURE

COPYRIGHT
Securities Commission Malaysia 2015
All rights reserved. No part of this publication may be reproduced, stored in or
introduced into a retrieval system, or transmitted in any form or by any means
(graphical, electronic, mechanical, photocopying, recording, taping or otherwise
without the permission of the Capital Markets Promotion Council.

DISCLAIMER
This book aims to provide understanding of the subject and is not exhaustive
write-up. It is not intended to be a substituted for legal advice nor does it diminish any
duty (statutory or otherwise) that may be applicable to any person under existing laws.
CONTENTS
MARKET
INTRODUCTION SEGMENTS APPENDIX

5
FINANCING THE 12 EQUITIES FREQUENTLY ASKED
40
FUTURE IPOs QUESTIONS
Quick Reference Guide
6 CAPITAL MARKETS 20 FIXED INCOME
FOREIGN EXCHANGE
43
MALAYSIA (CM2) An ASEAN Product ADMINISTRATION
A Resilient Market RULES APPLICABLE TO
An ASEAN Asset Product Diversity ISSUERS
An Open Market Methods of Issuing Bonds
An Efficient Tax Regime International Recognition
A Strong Governance
44 FOREIGN EXCHANGE
Range of Investors
Structure Liberalisation Efforts ADMINISTRATION
Government Support Quick Reference Guide RULES APPLICABLE
TO INVESTORS
25 FUND
MANAGEMENT ABBREVIATIONS/
46
Extraordinary Growth Potential
ACRONYMS
Diversity of Market Segments
Wide Market Base
Government Support
Open Regulation
Islamic Asset Management Hub

30 ALTERNATIVE ASSETS
Derivatives
Venture Capital/Private Equity

ISLAMIC CAPITAL
33
MARKET
Overview
Leader in Innovative Sukuk
Established Islamic Fund
Management Industry
Notable Innovative Sukuk
An ASEAN Market
Strong Intermediation
Capabilities
Shariah Governance
Facilitative Regulation
Value Proposition

4

FINANCING THE FUTURE
The future envisaged for the
next generation is one that
is sustainable, inclusive and
innovative. Capital markets play
an important role by ensuring
that growth is not about
maximisation, but optimisation
of an economy.
In 2013, Malaysia gained
recognition as an Advanced
Emerging market, with leading
positions in regional bonds and
global Islamic capital market.
It has one of the largest unit
trust industries in ASEAN, the
third largest bond market in
5
INTRODUCTION
Asia as a percentage of GDP
and the largest sukuk market
in the world. As such, Capital
Markets Malaysia (CM2) is a
prime platform for investors and
issuers to finance their future
growth plans.
By promoting diversity, CM2 is
a multi-faceted market with
a wide range of conventional
and Islamic products. A strong
governance infrastructure
coupled with intuitive
government support, enables
an efficient marketplace that
will harness the vibrancy of
the ASEAN potential. An ideal
platform for small and medium
sized companies to seek
financing, investors in turn can
be confident of stable long term
investment returns.
6

CAPITAL MARKETS MALAYSIA (CM2)

AN ASEAN ASSET
The 10 members of the Demographics play a key role investments in Capital Markets
Association of Southeast in ASEANs economic growth Malaysia (CM2) will mirror that
Asian Nations (ASEAN) prospects. The rising spending of the rest of ASEAN. CM2
account for 600 million power of ASEAN countries and with its diversity of products
people with a combined GDP the strengthening of demand be it conventional or Islamic, is
of US$2.1 trillion, solid in their domestic markets well placed to provide the right
growth, low manufacturing has huge growth potential. platform for companies wishing
costs and a rising middle class. Malaysia is in the centre of to finance their growth plans in
all these possibilities. With an Asia and neighbouring countries
expected GDP growth of over to finance much needed
5% annually in the next 2 years, infrastructure.

6,000

Vietnam
5,000
Thailand

Singapore
4,000
Philippines
US$ billion

3,000 Myanmar

Malaysia
2,000
Lao PDR

1,000 Indonesia

Cambodia
0
Brunei Darussalam
2019
2020
2001
2002
2003

2005

2006
2007
2008
2009
2010

2015

2018
2004

2011
2012
2013
2014

2016
2017

Source: IMFs World Economic Outlook database, October 2014

*forecast starts from 2014

 7

AN OPEN MARKET

There are no capital and
exchange restrictions in Malaysia.
Global investors are free to buy,
sell and hedge RM and
RM-denominated securities.
Malaysias liberalised foreign
exchange administration (FEA)
rules enhances Malaysias
competitiveness and business
efficiency, while promoting
financial and economic stability.
The relaxation in rulings was
made in tandem with the
readiness of the Malaysian
economy to support the
countrys growth and
competitiveness, while
creating a conducive business
environment for international
financial institutions.
Apart from enhancing Malaysias
competitiveness and business
efficiency, the liberal FEA rules
enable greater trade in foreign
currencies. With regards to
sukuk issuances, the relaxed
FEA rules enable foreign entities
to raise ringgit and foreign
currency-denominated funds
from Malaysia. The international
issuers can issue multi-currency
sukuk and have the flexibility to
swap domestic currency funding
into other currencies.

AN EFFICIENT TAX REGIME

Malaysia does not have Capital Gains Tax.
No withholding tax on interest derived from the following:
INTEREST COUPON/INTEREST INCOME

Interest accruing to any resident or Coupon/interest income derived by

non-resident individual, unit trust and
listed closed-end fund from:
bonds or securities issued or guaranteed
by the Government of Malaysia;
debentures, other than convertible
loan stock, approved by the Securities
Commission; and
Bon Simpanan Malaysia issued by Bank
Negara Malaysia.
non-resident companies from:
ringgit-denominated Islamic securities and
debentures, other than convertible loan
stocks,
approved by the Securities Commission;
and
securities issued by the Government of
Malaysia or Bank Negara Malaysia.
8

A STRONG GOVERNANCE STRUCTURE

CORPORATE GOVERNANCE REGULATION

Globalisation has increased the
scale of trade and as such sizes
of corporations have grown
with complex structures of
accountability. The culture of
focusing on profit maximisation
has amplified the importance
of corporate governance (CG).
Global regulatory actions taken
in the past year have highlighted
the importance of upholding
integrity in financial markets
as well as the consequences of
failing to do so.
OVERALL CG SCORE OF TOP 100
PUBLIC-LISTED COMPANIES IN MALAYSIA
110
100
90
80 71.69
70 62.29
60
50
40
30
20
10
0 particularly in the areas of
Average Score
2012
The Securities Commission
Malaysia (SC) believes that the
successful development of a
strong and credible corporate
governance environment
is premised on a dynamic
synthesis of the effort of both
the regulators and the market.
Each must fully discharge
its respective roles and
responsibilities as an integral
player of the CG ecosystem
that holds the market forces in
balance.
104.12
93.90
50.17
45.86
Highest Score Lowest Score
2013
Malaysia has a reputation
for being soundly regulated
whereby the authorities
recognise the fine balance of
regulation that is needed to
protect parties and yet facilitates
growth and development.
Malaysias regulatory framework
has been acknowledged by
the International Monetary
Fund (IMF) and World Bank
to be highly compliant with
international standards.
The Shariah Advisory Council
of the Securities Commission
Malaysia (SC) in turn, is
responsible to advice on matters
pertaining to the Islamic capital
market (ICM). Consisting of
prominent Shariah scholars,
jurists and market practitioners,
members of the SAC are
qualified individuals who
can present Shariah opinions
and have vast experience in
banking, finance, economics,
law and application of Shariah,
Islamic economics and finance.

Source: ASEAN Corporate Governance Scorecard Country Reports and Assessments 20132014

GOVERNMENT SUPPORT
ATTRACTIVE To promote Malaysia as an
international Islamic financial
FISCAL centre, the government has
implemented measures such as
INCENTIVES tax exemptions, tax neutrality
AND TAX provisions and other incentives
across the various Islamic finance
NEUTRALITY market segments. One of the
examples of tax neutrality is
Malaysias facilitative
environment encompasses a
FACILITATIVE sound infrastructure platform,
consisting of the Electronic
ENVIRONMENT Trading Platform (ETP) and the
Real-time Electronic Transfer of
Funds and Securities (RENTAS)
system. These systems allow
for an efficient platform for the
trading of bonds, with a high
level of post-trade transparency
and market liquidity. For global
investments, flexibility is also
accorded to foreign investors to
leverage on international clearing
and settlement systems.
Malaysia provides a facilitative
framework for sukuk issuance;
both for local and international
issuers. In addition to issuing
ringgit sukuk, the current
issuance framework allows for
issuers to issue a non-ringgit
sukuk in Malaysia.
9
Islamic finance transactions are
treated similarly to conventional
financing transactions for tax
purposes. In addition, sale
or lease of any assets that is
performed strictly to meet
Shariah requirements would be
ignored for tax purposes.
Moreover, Malaysia has an active
secondary market, which gives
investors the option to either hold
investments until maturity or to
take profit. The secondary market
enables greater trading activity
and attracts more investors
including foreign-owned
corporations, who are
continuously tapping the market
for funding.
This eventually augments the
depth and liquidity of the sukuk
market. Investors will benefit from
the wide array and increasing size
of sukuk transactions as they look
towards diversifying their asset
portfolios.
In this aspect, Malaysia
offers well-developed value
propositions, which enables a
dynamic scenario that benefits
both issuers and investors.
10
Malaysias diversity of market
intermediaries consists of
DIVERSITY OF investment banks, local and
foreign Islamic banks, brokers
FINANCIAL and fund managers who engage
in a number of activities ranging
INTERMEDIARIES from underwriting complex
financial transactions to advising
on sophisticated transaction
structures.
In addition, most of these
intermediaries have participated
in Malaysias many notable sukuk
issuances. As such, they possess a
proven track record and in-depth
experience. Capitalising on the
Malaysias legal framework caters
ADOPTION OF for Islamic finance matters with
a dedicated judge at the High
GLOBAL LEGAL Court level. The Kuala Lumpur
Regional Centre for Arbitration
AND REGULATORY (KLRCA) has specific capabilities
BEST PRACTICES to deal with Islamic contract
matters. This legal framework
enables the enforceability of
Shariah-based contracts for
Islamic finance while providing
governance and legal redress for
Islamic financial institutions. It
also provides for strong investor
protection.
In particular, the Capital Markets
Services Act 2007 (CMSA)
defines the parameters for
permitted capital market activities
inherent strengths of Malaysias
intermediaries enables issuers to
benefit from a smoother issuance
process while reducing costs. The
reputation of these intermediaries
adds further credibility to the
issuance.
Malaysias market intermediaries
are also internationally recognised
for their innovative capability in
structuring products, especially
sukuk. This is attributed to their
expert use of various Islamic
principles or a combination
of principles to produce truly
customised sukuk offerings.
in Malaysia, while reinforcing
the protection framework
and promoting international
best practices among financial
institutions. These and other such
regulatory guidelines have been
instrumental in providing industry
consistency and clarity for ICM in
Malaysia. In addition, Malaysias
regulatory guidelines have also set
benchmarks for other countries
in developing their own Islamic
capital markets.
The legal and regulatory
framework is constantly reviewed
taking into consideration latest
market, products and Shariah
issues to ensure continuous
development in ICM.
 11

FUND
Quick Reference Guide
MANAGEMENT

MARKET SEGMENTS
EQUITIES
Extraordinary Growth Potential
Diversity of Market Segments
Wide Market Base
Government Support
Open Regulation
Islamic Asset Management Hub
Alternative Assets
IPOs

Venture Capital/Private Equity

FIXED INCOME
An ASEAN Product

A Resilient Market
Product Diversity
Methods of Issuing Bonds
International Recognition
Range of Investors
Liberalisation Efforts
Quick Reference Guide
Notable Innovative Sukuk
An ASEAN Market
Facilitative Regulations
Leader in Innovative Sukuk
Overview
MARKET
ISLAMIC CAPITAL

12
The Malaysian equity market is one of As at 31 December 2014, the total
the fastest growing in Asia. It also has the equity market capitalisation for
highest number of listed companies in Malaysia stood at RM1.65 trillion
ASEAN with a total of 905 as at (US$445 billion). The year 2014
31 December 2014. also recorded Malaysia as the most
preferred destination in
EQUITIES Participation is well balanced with
retail, domestic institutional and foreign
fundraising in ASEAN where
RM27.7 billion (US$7.47 billion)1
institutional investors accounting for was raised.
approximately one-third of trade values
respectively. Amid a volatile global
environment, the Malaysian stock
market has provided steady returns to
investors, and is the second highest
in terms of market capitalisation in
ASEAN.

EQUITY MARKET CAPITALISATION IN MALAYSIA (RM BILLION)

2,400

1,651

1,300

444

2000 2010 Dec 2014 2020 (Projection)

1
Source: World Federation of Exchange (WFE).

Among the notable IPOs in
recent times were UMW Oil &
Gas Corporation Bhd which
raised RM2.36 billion and was,
in terms of oil and gas IPO, the
largest in Asia and the third
largest globally during the
year; Westports Holdings Bhd,
a port operator which raised
RM2.03 billion; AirAsia X, a
long haul low cost carrier which
raised RM987.65 million; and
Sona Petroleum Bhd, a special
purpose acquisition company
which raised RM550 million. In
2014, the sizeable listings were
IOI Properties Group Bhd, a
property developer
which raised RM1.87 billion;
Boustead Plantations
Bhd, an oil palm plantation
company which raised
IPO APPROVAL PROCESS IN MALAYSIA
Pre-Approval Approval
Structuring Review of
IPO & application
Submissions
T+ 11 weeks ----- T+ 21 weeks ----- T+ 25 weeks ----- T+26 weeks ----- T+ 28 weeks
RM1.05 billion; ICON Offshore
Bhd, an offshore
support vessel company servicing
the oil and gas industry
which raised RM0.94 billion and
7-Eleven Malaysia
Holdings Bhd, a convenience
stores chain operator
which raised RM0.73 billion.
Malaysian companies that have
listed on the stock exchange
have transformed into growing
Asian tigers, leveraging on the
growth of ASEAN and beyond.
One of the most attractive
features of the Malaysian
equity market is that it has
been providing sustainable
returns with an average
dividend yield of 3.1%.
Post-Approval
Registration of
Prospectus
13
In addition, the equity
market in Malaysia
has been resilient to
the fluctuations of
global movements
and sentiments and
is able to provide a
level of confidence to
investors.
Malaysias equity market success
in raising long term financing
for small cap companies
is reflected by the strong
performance in technology,
mining and construction
sectors. Therefore it is well
poised to serve as a regional
platform for growth for many
small and mid-cap companies.
IPO
Prospectus LISTING
Launch
14
Bursa Malaysia, the Malaysian
securities exchange, is
recognised as a designated
offshore securities market by
the US Securities and Exchange
Commission. The main index on
Bursa Malaysia is the FTSE Bursa
Malaysia KLCI Index, a
30-stock index calculated
according to globally accepted
index standards.
Bursa Malaysia in collaboration
with global index provider,
FTSE Group, operates a
comprehensive range of 12
real-time indices that cover
companies listed on the
Malaysian stock exchange.
These indices are designed
to measure the performance
of various segments of the
Malaysian market such as
large, mid, small cap, fledgling
and Shariah-compliant to give
investors a wider investment
selection.

MALAYSIA: AN ADVANCED EMERGING MARKET

Market cap Listed
FTSE status Country (US$ billions) Companies
Australia 1,288 2,073
Hong Kong 3,233 1,752
Developed Japan 4,377 3,470
Singapore 752 775
New Zealand 74 174
South Korea 1,212 1,864
Malaysia 459 905
Advanced Emerging Taiwan 850 880
Thailand 430 613
Source: World Federation of Exchanges (WFE), December 2014

Malaysia benefits from a strong
presence of domestic institutions
and retail that provide the
necessary stability and liquidity
to keep the market vibrant. For
example, in 2014, 50% of daily
trading volume originated
from local retail investors.
These institutions consist
primarily of pension funds,
insurance companies and asset
management institutions.
As an advanced emerging market,
the equity market plays a crucial
role in driving the structural
economic transformation for
Malaysia and the region as a centre
for investment and fundraising.
 15

Foreign investors are free to

invest in Malaysia in either
ringgit denominated or
foreign currency denominated
products. There is no
restriction for foreign investors
on repatriation of funds from
divestment of ringgit assets or
profits and dividends arising
from investments.
16

MAIN For established companies with a profit

track record of three to five full financial
MARKET
years or companies with a sizeable business

An alternative sponsor-driven market

ACE designed for companies of all business
MARKET sectors that have excellent growth potential

GLOBAL RECOGNITION

Source: Bursa Malaysia

 17

Quick Reference Guide

INVESTMENTS (BY NON-RESIDENT)

Purchase No restriction
Sale No restriction
Hedging onshore Allowed with licensed onshore banks
Hedging offshore Allowed with the appointed overseas branches of the licensed
onshore banks

FINANCING TO NON-RESIDENT TAXES

Local currency Yes Capital gains tax No

Foreign currency Yes Withholding tax No

18

CLEARING AND SETTLEMENT

Name of Clearing and Settlement Organisation
Bursa Malaysia Securities Clearing Sdn Bhd (wholly owned subsidiary of Bursa
Equities Malaysia) the Central Counterparty (CCP) for equities clearing & settlement

Bursa Malaysia Derivatives Clearing Sdn Bhd (wholly owned subsidiary of

Derivatives Bursa Malaysia derivatives Bhd) the CCP for derivatives clearing & settlement

Settlement: The settlement is done through the Real Time Electronic Transfer
Bonds of Funds and Securities (RENTAS) operated by Bank Negara Malaysia, the
Central Bank of Malaysia

Clearing: The clearing function is performed by LFX, which is responsible to

Offshore notify the Trading Agents.
markets (LFX) Settlement: This is performed by Citibank Worldwide Securities Services
(CWSS) and Deutsch Bank (Malaysia) Bhd (DBMB)

Settlement Cycle

Equities T + 3 (Fixed Delivery Settlement System)

Derivatives Daily settlement to market

T + 1 (Tom) for Notes and treasury bills (discount based)

Bonds T + 2 (Spot) for Notes, Malaysia Government Securities, Private Debt Securities,
Government Investment Issue

Offshore
T + 3 (Rolling Settlement Cycle)
markets (LFX)
 19

SECURITIES BORROWING AND LENDING (SBL)

There are currently two securities borrowing and lending (SBL) models:

1.

SBL Central Lending
Agency (SBLCLA) Model 2. SBL Negotiated
Transaction (SBLNT) that
where the clearing house acts as offers an option to borrow and lend
the central lending agency for all on an over-the-counter (OTC) basis.
SBL activities.

FEATURES
List of Designated Uptick RSS trades Regulated
Approved RSS rule (i.e. gross under the
Securities trading i.e. RSS trades shorts) Securities
for Short accounts can only be limited to Borrowing
Selling to facilitate keyed-in at a 10% of and
monitoring price greater issued Lending
than the last shares of (SBL)
traded price security per framework
trading day
20
The Malaysian fixed income market remains vibrant, supported by a strong demand
from a global pool of steadfast investors. The bond market is an important source of
funds as evidenced by the compounded annual growth rate (CAGR) of 11.3% over
the last decade.
FIXED Infrastructure development has become a critical priority for developing Asia. There

INCOME has been an observed shift from traditional means of financing through bank
borrowings into capital market based financing. The fixed income market has
provided a platform for accessing the significant savings in the region and
enables issuers to raise financing at a competitive cost.

As at 31 December 2014, the Malaysian bond market stood at a value of RM1.1

trillion (US$299.7 billion). The bond market (including Shariah-compliant bonds)
accounted for 40.2% of total corporate financing.

AN ASIAN PRODUCT RESILIENT MARKET PRODUCT DIVERSITY

The Malaysian bond market is
expected to grow to a value of
RM2.1 trillion (US$684 billion)
by 2020 with an average
annual growth rate of 11.3%
(from year 2004 2014). The
growth opportunities in the
bond market are also expected
to further escalate as the
entry point projects under
the Malaysian Governments
Economic Transformation
Programme (ETP) progresses
into implementation.
Malaysias bond market is
resilient to volatile international
capital flows. At RM1.1 trillion,
it is the third largest in Asia
relative to the size of the
economy. The depth of the
market provides absorptive
capacity for portfolios to be
rebalanced across maturities
in an orderly manner. Hence,
Malaysia is not significantly
affected by the retreat of
foreign portfolio funds which
other emerging bond markets
have experienced in recent
times.
The range of debt securities
issued has in part assisted
in increasing the types of
products available to cater
to an increasing demand
for innovation and portfolio
diversification from investors.
The focus on product diversity
forms part of the efforts by the
SC in deepening and developing
their debt capital markets, and
in turn increasing liquidity. Some
of these products include asset-
backed securities, perpetual
bonds, agro sukuk, and stapled
securities among others.
 21

Methods of Issuing Bonds

Auction
Bank Negara Malaysia (BNM) will issue government
bonds through competitive auctions. Successful
bidders are determined based on the lowest yields
offered. The coupon rate is then fixed at the
weighted average yield of the successful bids.
Principal Advisers can offer through auction BNM notes.

Direct Placement or Tender

Other types of bonds are issued directly via direct
placement or private tender.

Listed on Bursa Malaysia

Bursa Malaysias Exempt Regime
Under an Exempt Regime, bonds and sukuk can
be listed but will not be traded or quoted on the
Exchange. To date, there are 20 sukuk issuers and
seven conventional bond issuers listed under this
Regime.
22
To subscribe or trade in debt securities INTERNATIONAL
or sukuk, investors must open an RECOGNITION
account with Authorised Depository The persistent demand for
Malaysian fixed income is
institutions (ADIs). indicative of the ease of access
to the markets for offshore
investors. First, Malaysian fixed
ADIs offer protection to investors income is a part of developed
market bond indices such as
with regard to interest payments the Citibank World Government
Bond Index Malaysia is
and redemption proceeds. Each ADI notably one of the three
has to ensure separate accounts are emerging markets in the index.
This index has approximately
maintained for each customer and US$2 trillion of funds tracking it.

their own holdings.

RANGE OF INVESTORS
Malaysia as the largest fixed income
market in ASEAN is seeing a fair share of
non-resident participation and investment
particularly from investors in advanced
economics.
With the launch of the first Retail Sukuk
in 2013, the bond market opened up
to retail investors too1. The Malaysian
market mirrors growth potential of Asia
which is extraordinary with the growing
middle class numbers, the naturally
higher propensity to save for the future
and to invest in the capital markets.
LIBERALISATION EFFORTS
As part of the comprehensive framework underlying the
Malaysian fixed income market, the Bond Pricing Agency
Malaysia (BPAM) was set up as part of efforts to increase
transparency. The Malaysian Government has also liberalised
requirements for credit ratings by allowing international
credit rating agencies with full foreign ownership to operate
in the Malaysian market from January 2017.
Furthermore, CM2 will provide a platform that will catalyse
more cross-border and multi-currency bond and sukuk
issuances as well as explore potential new products such as
high-yield bonds with a view to broaden the credit spectrum
of investable asset classes.

INTRODUCTION OF LODGE AND LAUNCH FRAMEWORK

In 2014, SC announced the introduction of a new regulatory framework for the wholesale market with the
objective of significantly reducing time to market for wholesale products. Under this framework, offerings
for wholesale products are exempted from SCs authorisation under section 212 of the CMSA, subject to
lodgement of the requisite information and documents. This framework will come into effect in 2015.

1
DanaInfra Nasional Bhd [Government entity set up to finance (Mass Rapid Transit) MRT Project] of RM300 million to retail investors,
as part of a RM8 billion Islamic Commercial Papers/ Medium-Term Notes Programme. This retail sukuk is listed on the Loans and
Bonds Board of Bursa Malaysia.
 23

Quick Reference Guide

ISSUANCE BY NON-RESIDENT
Foreign issuers may issue bonds or sukuk denominated in ringgit or foreign currency in
Malaysia subject to approval from the relevant authorities. The ringgit and foreign currency
funds raised from such issuance may be used either in Malaysia or overseas.

Approval Body Securities Commission Malaysia

Settlement for government & unlisted Script less Securities Trading System (SSTS), which
corporations is part of the Real Time Electronic Transfer of Funds
and Securities (RENTAS) system

INVESTMENT IN LOCAL CURRENCY BONDS (BY NON RESIDENT)

Purchase No restriction
Sale No restriction
Hedging onshore Allowed with licensed onshore banks
Hedging offshore Allowed with the appointed overseas branches of the licensed onshore
banks

INVESTMENT IN FOREIGN CURRENCY BONDS (BY NON RESIDENT)

Purchase No restriction
Sale No restriction
Hedging onshore Allowed with licensed onshore banks
Hedging offshore No restriction

FINANCING TO NON-RESIDENT TAXES

Local currency Yes Capital gains tax No

Foreign currency Yes Withholding tax No

24
SETTLEMENT AND CUSTODIAL INFORMATION FOR LOCAL
CURRENCY BONDS
Scripless trading Fully Automated System for Issuing/Tendering (FAST) enables electronic
submission and processing of tenders for scripless securities and short-term
private debt securities in the primary market.

Bursa Malaysia (previously known as the Kuala Lumpur Stock Exchange)

is responsible in listing private debt securities by overseeing all trading
transactions through the System on Computerised Order Routing and
Execution (SCORE) and WinSCORE trading systems.

The Electronic Trading Platform (ETP) run by BNM facilitates over-the-

counter trading transactions. ETP is a centralised database on Malaysian
debt securities that is integrated with Fully-Automated System for Issuing/
Tendering (FAST). ETP provides information on terms of issue, real-time
prices, details of trades done, and supplies relevant news on debt securities
issued by both the government and the private sector.
Real-time gross Tender results are interfaced with Malaysias Real-time Electronic Transfer of
settlement Funds and Securities (RENTAS) for securities allotment and funds transfer.
system On the issue date, Principal Dealers securities accounts are credited with
the new bonds, while their cash accounts are debited for the price of the
securities purchased. Principal Dealers have various procedures for settlement
with clients. Normally, they debit a clients deposit account while crediting
the clients securities account.

TYPE OF TRADERS
Same Day Standard (T+1/T+2) & Forward (>T+2)
Trading hours 9.00 am 3.00 pm 9.00 am 4.30 pm
Settlement Cut-off time by 5.30 pm by 11.00 am on value date
Confirmation of trades <12.15 pm / <3.15 pm < 5.00 pm on trade date
(before noon/ afternoon)
Confirmation / Rejection of < 2.00 pm / < 4.00 pm < 5.30 pm on trade date
Unconfirmed advice (before
noon/ afternoon)
Settlement after the cut-off time on the same value date is considered a delayed payment while
settlement not executed by close of the business day on the value date is considered failed.
 25
With its many advantages
in geographical location, a
growing pool of skilled talent Fund
FUND
and professional and legal
services, Malaysia is well placed management
is the fastest
as a regional player for fund

MANAGEMENT
management.

The exponential growth in the

fund management industry
growing
CAGR of 18.6% over 10 years
has been largely underpinned segment in
Malaysias
by the strong growth in the
unit trust industry. Over the
same period, the net asset
value (NAV) of unit trust funds
(including Islamic unit trusts)
capital market
grew from RM87.4 billion
(US$23.58 billion) in 2004 to
RM343.02 billion (US$ 92.53
billion) in 2014.

DIVERSITY OF MARKET
EXTRAORDINARY GROWTH POTENTIAL SEGMENTS
The assets under management (AUM) is projected to rise from Besides the potential of institutional
RM377.4 billion in 2010 to RM1.6 trillion in 2020. and retail fund products, Malaysias
With a penetration rate in Malaysias unit trust industry private retirement scheme industry
amounting to 18% as at end 2010, there are significant is set to rise as a new and exciting
opportunities within the industry as this rate is expected to segment given Malaysias growing
almost double to a penetration rate of 34% by 2020. The young population. It is projected
Malaysian market reflects a similar potential for growth in Asia that assets under management
with the growing middle-class numbers, the naturally higher in the private retirement scheme
propensity to save for the future and to invest in the capital (PRS) industry will grow to RM30.9
markets. billion (US$10.3 billion) in the next
10 years. Developed in line with
The development in the unit trust industry has been aided international best practices, this
by several factors, including regulatory enhancements which industry which is still in its infancy is
have facilitated product expansion, strengthened investor garnering significant support from
safeguards, improved time-to-market efficiencies and expanded the Government through incentives
the distribution channels. Since June 2010, unit trust funds can for young professionals to invest in
adopt multi-class structures which enable them to be tailored to PRS products.
meet the needs of different investors.
26

The rise in the volume of investable

assets is set to increase from around
US$64 trillion today to US$102 trillion
by 2020, a compound growth rate of
nearly 6%. Assets under management
in the SAAAME (South America, Asia,
Africa and the Middle East) economies
are set to grow faster than in the
developed world. Growth in assets
will be driven by three key trends:
the government-incentivised shift to
individual retirement plans; the increase
of high net worth individuals (HNWIs)
from emerging populations; the growth
of sovereign wealth funds (SWFs).
Source: PWC Report on Asset Management 2020
 27
SOURCE OF CLIENTS FUNDS UNDER MANAGEMENT
(RM MILLION)
Private Other Total
Period Unit trust Corporate EPF pension funds local Foreign Total
2003 70,172.3 6,217.8 5,452.2 1,269.9 7,803.5 90,915.7 3,613.4 94,529.1
2004 87,385.0 6,128.0 6,385.2 1,056.6 9,411.6 110,366.3 3,765.0 114,131.3
2005 98,484.9 6,427.4 7,790.6 955.5 10,504.2 124,162.6 3,036.8 127,199.4
2006 121,773.2 7,550.8 12,319.1 1,155.7 14,192.2 156,990.8 3,618.0 160,608.8
2007 169,414.3 14,559.2 21,564.0 1,450.9 20,560.4 227,548.8 9,138.1 236,686.9
2008 130,435.8 16,429.4 21,207.5 1,007.2 46,850.4 215,930.4 7,607.3 223,537.7
2009 191,706.3 36,787.0 27,861.2 1,274.9 44,553.1 302,182.5 12,840.6 315,023.0
2010 226,811.6 42,517.6 38,837.8 2,296.5 54,701.9 365,165.4 12,330.3 377,495.7
2011 251,086.4 46,102.2 43,088.1 1,626.9 70,122.4 412,026.0 11,549.9 423,575.9
2012 294,932.4 52,950.3 57,571.8 1,717.5 83,997.6 491,169.6 13,890.4 505,060.0
2013 334,057.3 59,776.1 74,988.1 2,698.2 101,386.1 572,905.8 15,503.9 588,409.7
2014 342,397.5 65,991.8 87,054.1 1,513.8 116,440.9 613,398.1 16,582.0 629,980.1
Source: Securities Commission Malaysia

WIDE MARKET BASE GOVERNMENT SUPPORT

In line with the mutual recognition agreements
that the SC has signed with the Dubai Financial
Services Authority (DFSA) as well as the Hong
Kong Securities and Futures Commission (SFC),
cross-border offerings of Malaysian funds can
be made available in the United Arab Emirates
(UAE) and Hong Kong. Malaysia is also the
first emerging country to obtain the Qualified
Domestic International Investor (QDII) status
in China. In addition, the introduction of the
ASEAN Collective Investment Scheme (CIS)
which allows fund managers the ability to
market and distribute funds across member
countries (Thailand, Malaysia and Singapore for
now) is a cost efficient proposition that enables
access to these lucrative high-growth markets.
Incentives and Liberalisation
Consistent with the governments strong
commitment to entrench Malaysias position as an
international investment management centre, several
broad-ranging incentives to enhance the overall
landscape of the investment management industry,
with a focus on Islamic fund management, were
introduced in 2007.
Furthermore, liberalised shareholding structures
in fund management companies and real estate
investment trust (REIT) management companies are
some of the business-friendly policies implemented.
28

Tax Incentives
For unit trust funds, interest income
received by the fund from investments
in fixed income securities / instruments
are tax exempt;

For real estate investment trusts (REITs):

Stamp duty exemption for sale of
real estate to a REIT;
Tax exemption at REIT level (tax
transparency) provided that 90%
of its income is distributed; and
Lower income tax on income
received from a REIT (i.e. 10% for
individuals and institutions).

OPEN REGULATION
Apart from tax incentives, there has been
a progressive shift from merit assessment
towards disclosure-based regulation for both
fundraising and investment products. This has
resulted in greater certainty and transparency
for issuers and intermediaries to raise funds
and launch products in a timely and cost
efficient manner. More importantly, this helps
to promote product expansion and widening
of delivery channels which serve as catalysts for
growth.
OTHER REGULATORY
REQUIREMENTS
One-time approval of unit trust
management companies and trustees
A management company or trustee will only
be required to seek a one-time approval for
the purposes of section 289 of the CMSA
compared to the previous approach of
per-fund approval. Approved management
companies and trustees will be admitted
into an Approved List and shall be deemed
approved for future issuances, offerings or
invitations to subscribe for or purchase of unit
trusts. This will expedite the approval process
for the establishment of new funds.
Notification for outsourcing of
material functions
SC removed the requirement for approval
before an intermediary outsources a material
function. Instead, licensed intermediaries only
need to notify the SC within two weeks upon
signing the service level agreement for any
material outsourcing arrangement. The shift
from a pre-approval to a notification process
removes the prescriptive requirement and sets
out guidance for intermediaries in assessing an
outsourcing arrangement.
29
ISLAMIC ASSET MANAGEMENT HUB
Malaysia today has become a leading hub for
Islamic Asset Management. Its position as a global
Islamic financial centre has successfully attracted
local and international players to establish dedicated
Islamic fund management operations. There are
20 Islamic fund management companies operating
in Malaysia at the moment; these include Aberdeen
Islamic Asset Management, AmIslamic Fund
Management, RHB Islamic Asset Management,
BNP Paribas Islamic Asset Management and Franklin
Templeton Asset Management.
A noteworthy value proposition of the Malaysian
capital market is that over 74% of Bursa Malaysia
stocks are Shariah compliant, which includes blue
chip companies from oil and gas, infrastructure,
consumer and industry-based sectors. As a result,
there is a tremendous supply of investment avenues
that could benefit investors in the Islamic wealth
management arena.
INTRODUCTION OF LODGE AND
LAUNCH FRAMEWORK
In 2014, SC announced the introduction of a new
regulatory framework for the wholesale market with
the objective of significantly reducing time to market
for wholesale products. Under this framework,
offerings for wholesale products are exempted from
SCs authorisation under section 212 of the CMSA,
subject to lodgement of the requisite information
and documents. This framework will come into
effect in 2015.
30
Derivatives
ALTERNATIVE Malaysia is the worlds second
largest crude palm oil producer
ASSETS and exporter and serves as the
global centre for price discovery
vis--vis crude palm oil (CPO).
Understandably, the Malaysian
derivatives market is dominated
by CPO futures contracts. In
fact, Bursa Malaysia operates
the most liquid and successful
crude palm oil futures (FCPO)
contract in the world.
Driven by FCPO, Malaysias
derivative market has seen the
notional value of derivatives
traded at RM806.7 billion
(US$219.7 billion) in 2014.
SC approved the reintroduction
of two futures contracts to
assist investors in broadening
their trading and investment
opportunities as well as provide
suitable hedging instruments
for physical trade users.
Palm Olein Futures (FPOL), a
commodity futures contract,
was reintroduced to the
market on 16 June. It was
originally launched by the
Kuala Lumpur Commodity
Exchange in 1990 but not
traded. Its reintroduction is
timely as there is a larger
base of commodity players to
support the contract and the
Malaysian palm oil industry
has evolved and experienced
rapid growth over the past 20
years. FPOL will serve the palm
olein communitys hedging
and price discovery needs as
well as broaden trading and
investment opportunities for
investors in commodity futures.
It also complements existing
crude palm oil futures contract,
which has established itself as
the pricing benchmark for palm
oil globally.
The 5-Year Malaysian
Government Securities Futures
(FMG5) contract specifications
were revised to ensure that
the contract continues to serve
as a good proxy for market
participants to hedge and trade
their exposures more effectively.
The derivatives market is
projected to have a CAGR of
23.3% over the next years with
notional value traded to reach
RM4.2 trillion (US$1.4 trillion)
 31

With the strategic alliance with CME Group,

the product range in Bursa Malaysia is
anticipated to expand to provide hedging and
arbitraging activities across market segments.
Trading of derivative products on Bursa
Malaysia comprising commodity, financial
and equity futures is carried out via multiple
access globally on CME Globex, the electronic
trading platform of the CME Group... .

by 2020. Following a strategic
partnership of Bursa Malaysia
with the CME Group Inc. (CME),
the worlds largest derivatives
exchange, and the migration to
CMEs trading platform in 2010,
the derivative trade values is
expected to grow even more
rapidly.
With the strategic alliance with
CME Group, the product range
in Bursa Malaysia is anticipated
to expand to provide hedging
and arbitraging activities across
market segments. Trading of
derivative products on Bursa
Malaysia comprising commodity,
financial and equity futures is
carried out via multiple access
globally on CME Globex, the
electronic trading platform
of the CME Group, which
operates four other exchanges
namely CME, Chicago Board
of Trade (CBOT), New York
Mercantile Exchange (NYMEX)
and Commodity Exchange, Inc.
(COMEX). The US Commodity
Futures Trading Commission
(CFTC) allows Malaysian brokers
to solicit and accept orders
and customers funds directly
from US customers to trade
on Bursa Malaysia without
being registered as a futures
commission merchant with
the CFTC. Bursa Malaysias
Kuala Lumpur Composite Index
Futures Contracts (FKLI) are also
allowed to be offered and sold
in the US.
32
Venture Capital/Private Equity
Malaysias venture capital industry
recorded a total committed funds
under management at RM6.2
billion (US$1.7 billion) in 2014.
Venture capital investments
were mainly in sectors such as
electricity and power generation,
storage, financial services, IT as
well as communications. The
rapid growth was attributed
to the countrys commitment
to develop venture capital as a
source of financing to emerging
high-growth companies.
The government has provided
significant funding and tax
incentives to promote the
industry. For example, qualifying
venture capital companies
investing in venture companies
are given full tax exemption on
all sources of income for up to
10 years of assessment. Active
steps have also been taken to
expand the participation of
investment management firms in
venture capital and private equity
by giving them the flexibility to
invest in (a) unlisted securities
and (b) wholesale funds that
invest venture capital funds.
Other measures include allowing
collective investment schemes
like unit trust funds and closed
end funds to invest up to 10%
of their net asset value (NAV) in
unlisted securities.
The SC has revised the Guidelines
on Registration of Venture
Capital and Private Equity
Corporations and Management
Corporations was developed to
replace the Guidelines for the
Registration of Venture Capital
Corporations and Management
Corporations, for release in
early 2015. Feedback from
the Malaysian Venture Capital
and Private Equity Association
(MVCA) as well as practitioners
and professionals within the
venture capital and private
equity industries was taken into
consideration in formulating the
revised Guidelines to ensure a
smooth implementation process.
The revised Guidelines aims to
spur the further development of
the venture capital and private
equity industries and address the
limitations of the previous
guidelines. Revisions encompass
the inclusion of private equity
activities, giving further flexibility
to registered venture capital
corporations to invest in listed
securities subject to a certain
threshold and enhancing the
current reporting requirements to
allow for better data capture for
developmental and future policy
making purposes.
In addition, Bursa Malaysia
also offers the ACE Market
for companies to raise equity
based capital without the usual
requirement of a profit track record.
The sponsor-driven ACE Market has
proven to be an ideal platform to
nurture high growth companies.
The SCs equity fund-raising
framework also allows for the
listing of special purpose acquisition
companies (SPAC), which provides
another vehicle for capital-raising
by venture capital companies and
private equity firms.
In order to help the industry to
achieve sufficient critical mass to
generate self-sustaining growth
momentum, national initiatives
have been streamlined to ensure
more co-ordinated and effective
public sector funding of the
venture capital industry. In tandem
with this, greater public-private
sector collaboration has been
promoted in the critical areas,
namely at the start-up stage or
in nurturing patents towards the
commercialisation stage. Initiatives
such as angel networks will assist in
seeding the formation of innovation
based companies.
Our doors are open to venture
capital companies to capitalise on
all the facilitative measures put
in place, and to leverage on the
opportunities that ensue.

ISLAMIC
CAPITAL
MARKET
Islamic Capital Markets
(ICM) development stems
from its foundation of ethical
principles and strong corporate
governance. The underlying
principles that govern ICM,
among others are, mutual risk
and profit sharing between
parties, the assurance of
fairness for all and that
transactions are based on an
underlying business activity or
asset.
The ICM are where activities
are carried out in ways
which do not conflict with
Islamic principles, i.e. free
from prohibited activities
and elements such as gharar
(ambiguity), riba (usury) and
maisir (gambling).
1
Islamic Finance Outlook 2014, KFH Research Limited, January 2014.
In the last decade, there has
been strong global awareness
and interest in Islamic finance,
not only among Muslims, but
a wide range of investors who
perceive Islamic financing as a
fairer way of doing business.
As such there is a growing
view that the very framework
of ICM may be a strong viable
alternative to conventional
finance.
The prospects for the Islamic
capital markets remain
positive. According to an
industry report1, the size of
global Islamic finance assets is
projected to surpass the US$2
trillion-mark by the end of 2014
and the industry is expected
33
to continue to chart positive
growth across all sectors. Within
the Islamic capital market
segment, the global sukuk
market is set to maintain its
upward trajectory, spurred by a
number of sovereign issuances
expected to take place this year.
In June 2014, the UK became
the first western country to
issue a sovereign sukuk. Hong
Kong issued its sukuk of
US$1 billion in September 2014,
the administrative regions
first. Luxembourg followed suit
with a AAA-rated government
sukuk, 200 million, in October
2014.
34
Overview
The Malaysian Islamic capital
market has experienced
phenomenal growth and raised
the bar globally for product
innovation and financial
intermediation. This market
comprises the Islamic equity
sector and fixed income. As at
end of 2014, the total size of
the ICM stood at US$ (RM1.5
trillion) accounting for 57% of
the total market capitalisation
in Malaysia and represents a 10-
year CAGR of 11.3%
As a marketplace for global
sukuk, Malaysia issued US$77.9
billion or 66% of the total global
sukuk that was issued for the
SIZE OF MALAYSIAS ISLAMIC CAPITAL MARKET
1,600
1,400
1,200
RM billion
1,000
800
600 47.0
463.8
400
2003
Source: Securities Commission Malaysia
year 2014. In addition 58%
of the total sukuk outstanding
globally is domiciled in
Malaysia, with a value of
US$172.8 billion. Malaysia
stands out as the only sukuk
market with global outstanding
above US$100 billion.
On Bursa Malaysia, the national
exchange, more than 70%
of the stocks are classified
as Shariah compliant by the
Shariah Advisory Council of
SC. Malaysia has a large Islamic
equity market and is home
to 188 unit trust funds across
asset classes. This provides
the drive for continuous
Total size of ICM (LHS)
ICM as a % of total capital market
2004 2005 2006 2007 2008 2009
development of the countrys
Islamic fund management
industry.
Apart from size, Malaysias
Islamic capital market is also a
proponent of innovation and
sophistication. To fulfil market
demand for diversification
strategies, market players have
structured innovative investable
products such as Malaysias first
Islamic real estate investment
trust (i-REIT) and the first
Islamic stapled REIT, Asias
first Islamic exchange-traded
fund (i-ETF) and Asias first
exchange-traded sukuk.
1,588.4
59
57.53 57
Percentage (%)
55
53
51
49
47
45
2010 2011 2012 2013 2014
 35
Leader in Innovative Sukuk

Malaysia leads in the
development of the sukuk
market, introducing innovative
and competitive sukuk structures
that appeal to a wider investor
base. An example of Malaysias
pioneering efforts in innovative
sukuk structures include the
US$750 million (RM2.7 billion)
exchangeable sukuk musharakah
by Khazanah Nasional Bhd.
It was the first sukuk that
incorporated full convertibility
features that are similar to equity
linked notes.
Moreover, Malaysian financial
intermediaries have a
track record of successfully
structuring sophisticated and
sizeable sukuk deals that
conform to international
best practices. As the top
listing destination for sukuk
throughout many consecutive
years, issuances listed here
enjoy high visibility and high
demand from global investors.
The facilitative environment
for sukuk includes a trading
and reporting platform that
provides an efficient price-
discovery mechanism and a
framework with a high level of
post-trade transparency.
During 2014, the SC released
the framework for the issuance
of sustainable and responsible
investment sukuk, or SRI sukuk.
The framework represents part
of the SCs agenda to develop
the SRI sector which has
grown significantly on a global
scale. SRI was considered as
complementary. The principles
underlying SRI have been
observed to be not dissimilar
with those underlying Islamic
finance, hence the SC believes
the SRI sukuk initiative is
timely in bringing together
the growing SRI sector and
Malaysias well-developed
Islamic finance industry.

NOTABLE INNOVATIVE SUKUK

First supranational
First global RM-denominated sukuk First exchangeable
corporate US$ by International Finance US$ sukuk by
sukuk by Kumpulan Corporate, privately Khazanah Nasional.
Guthrie. owned unit of the World 6x oversubscribed,
US$150 million Bank. RM500 million US$750 million

1990 2001 2002 2004 2005 2006

First First sovereign First Islamic Residential
RM-denominated USD sukuk by the Mortgage Backed
sukuk by Shell MDS, a Government of Securities by Cagamas
foreign multinational Malaysia. MBS.
company. 2x 5.4x oversubscribed,
RM125 million oversubscribed, RM1.8 billion
US$600 million
36
Established Islamic fund management industry

Better wealth creation and
investment opportunities for
investors have also been made
available by increasing the
number of full-fledged Islamic
fund management companies,
including allowing full foreign
equity ownership, with no
restrictions on investments
abroad. The Islamic fund industry
was further accorded with
financial incentives in the form
of tax relief on management fees
until year of assessment 2016. All
these measures have succeeded
in drawing global professional
talent to set up their Islamic fund
operations in Malaysia.
These efforts created the
necessary critical mass of fund
management companies and
in doing so, increased the scale
of Islamic finance activities. As
of December 2014, 10 out of
20 Islamic fund management
companies are wholly foreign-
owned. The assets under
management for Islamic funds
stood at RM111 billion, and is
the second largest in the world
in terms of size.
Opportunities extend from
using the industrys expertise
and capabilities in identifying
Shariah-compliant investment
opportunities across Asia and
providing Shariah investment
solutions, to leveraging the
enabling environment for
Islamic finance and pro-business
policies for the establishment
and growth of the Islamic fund
management operations here.

Worlds single largest

sukuk issuance, by PLUS.
RM30.6 billion
Khazanah Nasional issues First Japanese sukuk issued
exchangeable sukuk that is in Malaysia at
first to be priced at a negative US$500 million
yield and first Malaysian being the first in the world
First RM-denominated equity-linked deal since 2010. (Bank of Tokyo-Mitsubishi UFJ).
sukuk by Islamic US$357.8 million First Turkish lender issued
Development Bank Innovative RMB sukuk using RM800 million
(IDB). RM1 billion air-time voucher by Axiata ringgit denominated sukuk
programme Group Bhd (Turkiye Finans).

2007 2008 2011 2012 2013 2014

First global subordinated Worlds first China SG$ exchangeable sukuk by
sukuk by Maybank. Renminbi-denominated Khazanah Nasional.
7x oversubscribed, Emas sukuk by SG$600 million
US$300 million Khazanah Nasional. US$ Emas sukuk by Sime Darby.
RMB500 million US$800 million
(RM246 million) * Emas is the Bahasa Malaysia word for
gold. The Emas designation is given to
multicurrency sukuk issuances

An ASEAN Market
The ASEAN Collective Investment
Scheme (CIS) Framework became
operational between Malaysia,
Singapore and Thailand in 2014.
This multilateral arrangement
would also facilitate broader
Strong Intermediation Capabilities
The presence of large domestic
intermediaries with regional
footprint as well as numerous
global intermediaries provides
Malaysia with yet another
competitive advantage. We
also have investment banks and
stockbroking companies licensed
to carry out a broad spectrum
Shariah Governance
In developing the Islamic
capital market, a centralised
Shariah governance framework
was adopted as an effective
mechanism to ensure adherence
to, and the consistency of
Shariah principles. In meeting
distribution of Islamic funds
across the member countries.
Malaysia, having the largest
Islamic unit trust fund market
in ASEAN with total NAV of
US$13 billion, can potentially
of capital market activities and
a host of advisory companies
licensed to carry out activities
such as corporate finance,
investment advisory, financial
planning etc. Given the first
mover advantage that our
ICM has over markets in other
countries, clearly the depth
this need, the two-tier Shariah
governance frameworks
are implemented: the
establishment of a Shariah
Advisory Council for the capital
market at the national level and
the appointment of registered
37
offer some of these funds
in other member countries
while fund managers in other
countries can tap on the large
investor base in Malaysia for
Islamic fund products.
of expertise including Islamic
finance professionals in areas
such as structuring, advisory,
Shariah compliance, legal and
accounting is also an important
strength and reflects Malaysias
growing significance as a centre
of intermediation for the Islamic
capital market.
Shariah advisers at the
industry level. The governance
framework promotes
standardisation of Shariah
practices within the industry
and removes the possibilities
of arbitrage and uncertainty
within the system.
38
Facilitative Regulation
Investors in Malaysias ICM
products are accorded the same
legal and regulatory protection
and recourse as conventional
products. The Malaysian
Government has ensured that
disclosure, transparency and
governance matters apply
equally to both markets.
These measures are anticipated
to further enhance the vibrancy
in Malaysias sukuk market
which currently accounts for
58% of sukuk outstanding
globally in 2014.
Value Proposition
The ICM offers three main value
propositions for investors. First
are the greater diversification
opportunities since the sector-
profiles are typically different
from conventional products.
Second, it has enabled financial
inclusion to those who have
The SRI sukuk framework was
thus launched on 28 August
to facilitate the financing of
sustainable and responsible
investment initiatives. As the
principles underlying SRI are
similar to those underlying
Islamic finance, the SRI sukuk
initiative is timely as it brings
together the growing SRI sector
and Malaysias welldeveloped
Islamic finance industry.
The SRI sukuk framework
capitalises on the existing
sukuk framework set out in the
Guidelines on Sukuk.
been avoiding conventional
investments due to ethical
considerations. And third,
in view of the growing
affluence in Muslim-majority
countries, ICM has created the
opportunity for meeting this
investment demand.
Additional requirements
addressed in the framework
for the issuance of SRI sukuk
include the utilisation of
proceeds, eligible SRI projects,
disclosure requirements,
appointment of independent
party and reporting
requirements. Eligible SRI
projects as prescribed under
the framework aim to preserve
and protect the environment
and natural resources, conserve
use of energy, promote use
of renewable energy, reduce
greenhouse gas emission and
improve the quality of life for
society.
Malaysias ICM is thus able
to offer a comprehensive
infrastructure that supports
competitiveness and innovation
of product solutions and create
a global marketplace conducive
for capital market business and
transactions.
 39

Frequently
Asked
Questions

Foreign Exchange
APPENDIX

Administration Rules
Applicable to Issuers

Foreign Exchange
Administration Rules
Applicable to Investors

Abbreviations
/ Acronyms
40

Frequently
Asked
Questions

Q : How does Malaysia attract foreign

investors to its local markets?

We have embarked on extensive marketing efforts
to attract foreign investors through roadshows,
investment seminars and other speaking
engagements. Our local markets benefit from a
relatively strong primary demand for our capital
markets products due to high domestic savings
which we have successfully mobilised. We continue
to create greater demand by developing the fund
management business including the private
pension fund industry and other investment conduits
such as unit trusts and retail investment products.
Additionally, we ensure market dynamism by
encouraging greater balance between long-
term investors and short-term traders. All these
will enhance Malaysias attractiveness to foreign
investors.

Q : Will Malaysia be fully liberalised?

Foreign players can already have majority quality players who can contribute value add
ownership in all segments of the Malaysian capital to the growth of the Malaysian capital market
market and can buy over existing players. We do while managing prudential risks from competitive
have an entry policy which is aimed at attracting intensity.

Q: How does Malaysia create new
market opportunities?
Malaysia is moving on several fronts to encourage
quality foreign companies and products to list
on our exchange, so that domestic investors can
buy such products at their doorstep. We are also
initiating more cross-border collaborative regulatory
arrangements among ASEAN countries to create
new market opportunities.
In line with the mutual recognition agreements
that the SC has signed with the Dubai Financial
Services Authority (DFSA) as well as the Hong
Q : Why would Malaysia be attractive
to foreign shareholders?
The Malaysian equity market is vibrant and offers
unique value propositions and excellent investor
protection. In addition, Bursa Malaysia is host to
some of the worlds largest oil palm plantation
companies and regional oil and gas sector
41
Kong Securities and Futures Commission (SFC),
cross-border offerings of Malaysian funds can be
made available in UAE and Hong Kong. Malaysia
is also the first emerging country to obtain the
Qualified Domestic International Investor (QDII)
status in China. In addition, the introduction of the
ASEAN Collective Investment Scheme (CIS) which
allows fund managers the ability to market and
distribute funds across member countries (Thailand,
Malaysia and Singapore for now) is a cost efficient
proposition that enables access to these lucrative
high-growth markets.
companies, which provides for capital flows into
the commodity sector as well as ASEAN regional
champions for banks and the GLCs. We are a
good proxy to the ASEAN asset class growth.
42
Q : Why is Malaysia moving from Shariah-compliant
to Shariah-based approaches?
The Shariah-compliant approach is premised
largely on the adaptation of existing conventional
products but with features prohibited under
Shariah principles eliminated. The Shariah-based
approach, on the other hand, looks into innovating
new products that will finance real economic
activities with a more direct risk-return trade-off
model.
Q : How does Malaysia manage systemic risks
in the capital market?
As the regulator of the Malaysian capital market,
the SCs priority is to maintain market stability.
The SC increasingly shares information and
collaborate with other domestic and foreign market
The shift from Shariah-compliant approach to
Shariah-based approach will promote more product
origination rather than product adaptation.
This will in turn, strengthen the universality and
acceptability of the Islamic capital market and
giving it a distinctive value proposition, bringing
along new opportunities and choices to investors
and stakeholders alike.
supervisory authorities in managing systemic
risks. The SC also has the powers to direct market
intermediaries to take appropriate measures to
monitor, mitigate or manage systemic risks.
 43

Foreign Exchange
Administration Rules Applicable
to Issuers
Issuance of ringgit Multilateral development banks, multilateral financial
and foreign currency- institutions, foreign sovereign, foreign quasi-sovereign
denominated Issuance of ringgit or foreign agencies and foreign multinational companies may issue
bonds / sukuk in currency-denominated ringgit or foreign currency-denominated bonds/sukuk in
Malaysia by non- bonds/sukuk Malaysia.
residents
Proceeds from the issuance of bonds/sukuk are
allowed to be used onshore or offshore.
Issuance of ringgit or foreign
currency denominated Ringgit-denominated bond/sukuk proceeds to be
bonds/sukuk used offshore have to be converted into foreign
currency with the licensed onshore banks.
Hedging Issuers are free to hedge exchange rate and interest/profit rate exposure arising from the
issuance of ringgit-denominated bonds/sukuk and any subsequent interest/profit and
coupon payments with the licensed onshore banks.

Non-resident investors of the bonds/sukuk are also free to hedge exchange rate and
interest/profit rate exposure with licensed onshore banks.
Issuance of ringgit Issuance of ringgit- Free to issue in Malaysia.
and foreign currency- denominated bonds/sukuk
denominated bonds/
Utilisation of ringgit- Free to use the proceeds for any purpose onshore.
sukuk in Malaysia by
denominated bonds/sukuk
residents
proceeds Free to use the proceeds for investment in foreign
currency assets provided the issuers total investment
does not exceed RM50 million equivalent in
aggregate per calendar year.
Issuance of foreign currency- Allowed as long as total foreign currency borrowing,
Issuance of ringgit denominated bonds/sukuk including the bonds/sukuk does not exceed RM100 million
and foreign currency- equivalents.
denominated
bonds / sukuk in Utilisation of foreign Free to use onshore and offshore.
Malaysia by residents currency-denominated
bonds/sukuk proceeds
44
Foreign Exchange
Administration Rules Applicable
to Investors
Non-resident Issuance of ringgit
investor or foreign currency-
denominated bonds/sukuk
Others
Resident investors Unit trust management
companies
Non-residents are free to invest in any form of
ringgit assets in Malaysia.
There are no restrictions on the repatriation of capital,
profits and income earned from Malaysia, including
salaries, wages, royalties, commissions, fees, rental,
interest, profits or dividends.
To complement the non-residents investment
strategy, non-residents may:
Borrow in foreign currency of any amount from
licensed onshore banks.
Enter into foreign exchange contracts with licensed
onshore banks to actively manage currency risks
arising from investments in ringgit assets.
Free to convert foreign currency into ringgit and vice
versa.
In addition, non-resident non-bank companies
and individuals are free to borrow in ringgit of any
amount from licensed onshore banks, resident
companies and individuals to finance activities in
the real sector in Malaysia, including financing the
purchase of immovable properties.
Investment of Islamic funds.
No limit.
Investment of conventional funds.
Foreign currency-denominated funds
100% of the net asset value (NAV).
Ringgit-denominated funds
100% of NAV attributed to non-residents and
residents without domestic ringgit borrowing.
50% of NAV attributed to residents with
domestic ringgit borrowing.

Foreign Exchange
Administration Rules Applicable
to Investors
Resident investors Fund management
companies
Takaful operators,
including international
currency business unit of
takaful operators and
international takaful
operators
45
Fund mandated to be invested in Shariah-compliant
assets.
No limit.
Fund mandated to be invested in non Shariah-
compliant assets.
Foreign currency-denominated funds
No limit.
Ringgit-denominated funds
100% of total funds managed for non-
residents and residents without domestic ringgit
borrowing.
50% of total funds managed for residents with
domestic ringgit borrowing.
Foreign currency-denominated funds.
100% of NAV of foreign currency investment-linked
funds marketed to residents and non-residents.
Ringgit-denominated funds.
100% of NAV of investment-linked funds marketed
to non-residents and residents without domestic
ringgit borrowing.
50% of NAV of investment-linked funds marketed to
residents with domestic ringgit borrowing.
10% of margin of total assets.
5% of total assets for takaful operators.
46

Abbreviations / Acronyms

ACE FBMKLCI
Alternative stockmarket on Bursa Malaysia, FTSE Bursa Malaysia Kuala Lumpur Composite
formerly known as MESDAQ Index
ASEAN GDP
Association of Southeast Asian Nations Gross domestic product
AUM ICM
Assets under management Islamic capital market
CAGR IMF
Compounded annual growth rate International Monetary Fund
CBOT IPO
Chicago Board of Trade Initial public offering
CFTC MESDAQ
Commodity Futures Trading Commission Malaysian Exchange of Securities Dealing and
CME Automated Quotation
CME Group Inc MVCDC
COMEX Malaysian Venture Capital Development Council
Commodity Exchange NAV
CMSA Net asset value
Capital Markets and Services Act 2007 NYMEX
CPO New York Mercantile Exchange
Crude palm oil QDII
ETF Qualified Domestic Institutional Investor
Exchange-traded Fund SPAC
ETP Special purpose acquisition company
Economic Transformation Programme SRI
Sustainable and responsible investment
 47
NOTES
48
NOTES