Onshore foreign exchange (forex) market is going through a period of adjustments and Bank Negara has been more active in supplying liquidity on both sides to address the demand and supply mismatches.
In a statement today, it said overall, the volume has been sustained where more two-way flows had been observed from resident exporters and importers contributing towards liquidity in the onshore market.
"When the measures are fully effected, the market would be able to self-intermediate the flows without the need for Bank Negara to participate actively," it said.
Bank Negara was responding to concerns raised by participants during a recent workshop on 'Onshore Foreign Exchange Hedging for Non-Resident Investors'.
The workshop was organised in collaboration with Asia Securities Industry and Financial Market Association and Global Financial Markets Association and hosted by CIMB Bank.
About 60 participants, comprising global custodian banks, global fund managers, index providers and institutional investors from Hong Kong, Singapore, Thailand and Malaysia, were connected via video conference to discuss issues and queries on the financial market development measures.
These measures were announced by the Financial Markets Committee on Dec 2, 2016.
The participants raised concern on reportedly low levels of liquidity in the ringgit forex market since the introduction of the new measures and the ban on non-deliverable forward trading.
In the workshop, Bank Negara provided a perspective of the onshore forex market liquidity, where over the past four years, the overall forex turnover averaged around US$2.5 trillion (US$1 = RM4.44).
The daily market volume is a measure that would indicate the ability of participants to transact in the forex market.
The average daily trading volume is US$8.6 billion of which spot trading volume since 2016 stood at US$3.4 billion, while swap and forward transactions accounted for US$4.7 billion and US$536 million, respectively.
Bank Negara said with the introduction of the dynamic hedging framework and more clarity on the onshore hedging market, increasing volume would be expected over the longer term and this would assure non-resident investors of sustained market liquidity.
The central bank said that under the passive hedging framework, fund managers were allowed to hedge on transactional or portfolio basis up to 100 percent of their asset under investments.
Fund managers may make incremental increases, rollover as well as net settle the hedges, it said.
As for the newly-introduced dynamic hedging framework, Bank Negara said, upon registration, fund managers might actively manage their forex position, either buy or sell forex forward, up to net (long or short) 25 percent of its asset under management.
"For ease of operations, registered fund managers are not required to show documentary proof when they are transacting in FX forwards with onshore banks.
"Monitoring of these fund managers’s transactions will be conducted by Bank Negara through its existing foreign exchange transaction reporting system," it said.
It was highlighted that fund managers have the flexibility to register at the company level or at individual fund basis.
Bank Negara said to-date, a total of 20 market institutions, consisting of 39 funds, had registered with it.
Regarding after-hours trading, it said, onshore banks were free to quote forex after Asian closing hours, and took note on the potential need for the market to have sources of onshore market liquidity during the extended trading hours.
"Our markets remain open and we welcome the continued participation of foreign fund managers in the onshore ringgit market," it said.
Assistant governor Adnan Zaylani Mohamad Zahid said with the measures Bank Negara was providing for greater flexibility for investors to invest and manage their foreign exchange risks.
- Bernama
