Governor Datuk Nor Shamsiah Mohd Yunus said the initiative is part of BNM’s efforts to improve market efficiency, accessibility and liquidity in the domestic financial market, whilst preserving an orderly and transparent onshore financial market.
“Dynamic hedging is similar to hedging on the non-deliverable forward (NDF) market, just that it is in the domestic market and there’s more transparency compared to the offshore NDF market,” she told reporters at the first quarter 2019 economic performance briefing here today.
She said to facilitate the management of foreign exchange (forex) risk, taking into account institutional investment profiles, registered institutional investors can enter into forward contracts to buy the ringgit beyond the current 25 per cent of underlying assets threshold upon approval by BNM.
“To ease investors’ accessibility to the onshore forex market, forex transaction and documentation processes will continue to be improved and simplified.
“In this respect, a standard documentation guide for forex transactions has been developed by the industry and will be circulated via the Association of Banks Malaysia (ABM) for reference by market participants,” she said.
She said to further develop an effective hedging platform for investors, BNM, in collaboration with Securities Commission Malaysia, Bursa Malaysia and key market players, would further enhance the delivery mechanism for Malaysian Government Securities (MGS) futures settlements.
“We hope to be able to implement it (MGS futures settlements improvement) by the end of the year,” she said.
Meanwhile, she said recognising the important role of the repurchase agreement (repo) market in secondary market trading activities, BNM would further increase the availability of off-the-run bonds to be borrowed via repo for market-making activities.
She said the repo guideline would be reviewed accordingly to allow, amongst others, extending the repo tenure beyond one year.
Introduced in December 2016, the dynamic hedging programme provides an avenue for non-resident investors to actively manage their foreign exchange exposures onshore.
To date, the programme has 88 registered investors managing a total of US$30.8 billion (US$1=RM4.17) in assets.