Malaysia's Bank Negara hits out at SGX for launching ringgit futures

PHOTO: The Star

PETALING JAYA: Bank Negara has hit out at the Singapore Stock Exchange (SGX) and the Intercontinental Exchange (ICE) in Singapore after the bourses introduced the trading of ringgit futures on their exchanges that went against the country's policies.

Saying the introduction of the derivative contracts was inconsistent with Malaysia's foreign exchange administration (FEA) policy and rules, the central bank reminded all market participants to observe existing FEA rules.

"Contravention of the FEA is an offence under the Financial Services Act 2013 and Islamic Financial Services Act 2013," it said in a statement yesterday.

"Appropriate action under the law will be taken against any person that does not comply with prevailing rules and regulations.

"Foreign participants should access the onshore ringgit foreign-exchange market to meet their financial needs, either directly with onshore licenced financial institutions or their appointed overseas office."

The ringgit is a non-internationalised currency, and thus, Bank Negara said the offshore trading of the ringgit in any form, whether as a non-deliverable forward (NDF) traded out of offshore financial centres or as a futures, options and other derivative contracts on exchanges outside of Malaysia, is against Malaysia's policy.

Bank Negara has taken great effort to restrict the trading of the ringgit offshore. It decided to act in December last year against the offshore NDF market after seeing how the onshore rates were taking their cue from abroad on what the ringgit's value against the US dollar should be.

Its action stemmed from the fact that much of the trading offshore in the NDF market was speculative and had a huge influence on the ringgit's value against the US dollar.

At Invest Malaysia recently, Bank Negara governor Datuk Seri Muhammad Ibrahim said 80 per cent of transactions of ringgit/dollar trading in offshore markets were speculative transactions.

Malaysia has long maintained that the trading of the ringgit should be tied to trade-related activity. "We cannot afford to have the exchange rate dictated by others," he told an audience at Invest Malaysia in July.

In quashing the influence of the NDF market, Bank Negara directed local and foreign banks dealing in ringgit to refrain from dealing in ringgit in the settlement for trades done in the NDF market abroad, and imposed a requirement for exporters to convert at least 75 per cent of their export proceeds to ringgit.

The Financial Markets Committee in June said that in 2017, six additional non-resident banks have attested against the offering or trading of ringgit NDF in the offshore market, with a total of 22 institutions attested since November 2016. It said Bank Negara would continue to seek wider compliance to the non-facilitation rule from offshore financial market players.

Moves to slowly neutralise the NDF market were key in shoring up the value of the ringgit, and in time, Bank Negara saw more trades being done onshore as it moved to deepen the ringgit trading market in Malaysia.

It is not surprising that Bank Negara has issued a strongly worded statement against the introduction of new ringgit futures markets in the two bourses in Singapore, given the length and effort it took to draw in trade of the ringgit onshore from offshore markets.

Open interest and trading volume of the ringgit derivative contract on the SGX market appears to be small after the product was launched last month. But Bank Negara has been trying to stop the introduction of the ringgit futures contract on SGX for the past few months.

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