Bank Negara liberalises, deregulates onshore ringgit hedging market

PETALING JAYA: The Financial Markets Committee (FMC), together with Bank Negara Malaysia (BNM), announced several measures to enhance the liquidity of the foreign exchange market, including the liberalisation and deregulation of the onshore ringgit hedging market.
The measures, which take effect today (Dec 5), are part of a strategy to broaden and deepen the Malaysian financial markets, the FMC said in a statement last Friday.
In order to provide greater flexibility for market participants to manage foreign exchange risks, residents (including resident fund managers) may now freely and actively hedge their US dollar and CNH exposures up to a limit of RM6 million per client per bank. Only a one-time declaration of non-participation in speculative activity is needed.
In addition, resident and non-resident fund managers can now actively manage their foreign exchange exposure up to 25% of their invested assets. Fund managers must register with BNM to qualify for this arrangement.
In order to broaden accessibility of foreign investors and corporates to the onshore foreign exchange market, offshore non-resident financial institutions may participate in the Appointed Overseas Office (AOO) framework which will be accorded additional flexibilities on ringgit transactions.
“These flexibilities include foreign exchange hedging (own account/on behalf of client) for current and financial account based on commitment, opening of ringgit account (book-keeping) and extension of ringgit trade financing,” said FMC.
The FMC is also streamlining treatment for investment in foreign currency assets. Under this initiative, resident entities with domestic ringgit borrowing are free to invest in foreign currency assets both onshore and abroad up to the prudential limit of RM50 million.
“Residents without domestic ringgit borrowing shall continue to enjoy flexibility of investing in foreign currency assets both onshore and abroad up to any amount. This gives equal treatment for residents with ringgit borrowings investing in foreign currency assets whether in the onshore or offshore market,” it said.
In terms of incentives and treatment of export proceeds, exporters may now retain up to 25% of export proceeds in foreign currency and hold higher balances with approval from BNM to meet their obligations in foreign currency.
Payment by resident exporters for settlement of domestic trade in goods and services is now to be made fully in ringgit while all ringgit proceeds from exports can earn a higher rate of return via a special deposit facility.
“The special deposit facility for ringgit proceeds will be offered to exporters via all commercial banks and receive a rate of 3.25% per annum. This facility will be offered until Dec 31, 2017 subject to further review,” it said.
Meanwhile, foreign currency arising from conversion of export proceeds will be used to ensure continuous liquidity of foreign currency in the onshore market.
In addition to the newly announced hedging measures, exporters are also able to hedge and unhedge up to six months of their foreign currency obligations.
“These measures are intended to promote a deeper, more transparent and well-functioning onshore foreign exchange market where genuine investors and market participants can effectively manage their market risks with greater flexibility to hedge on the onshore market. A deep and liquid onshore foreign exchange market will enable investors to better manage against volatile currency movements,” said FMC.