An investor can either hold a security until maturity or sell prior to maturity at the current market price. Investors can also buy bonds already issued.
Government securities are traded over-the-counter (OTC) in the secondary market. Investors trade through bond dealers. Bond dealers are financial institutions licensed by the Securities Commission to trade bonds for their own or client accounts.
Investors place orders with dealers at the price and amount they want. Different types of orders can be placed. Order fulfillment depends on whether the order can find a buyer or seller on the OTC market. The standard market lot for government securities is MYR 5 million.
Banks maintaining their own bond inventory usually provide their market bid or offer price to clients. Quotes are price/100 or yield to maturity of the bond.
The OTC market is facilitated by Bank Negara Malaysia through FAST. It provides information on issue terms, real-time prices, done trade details, and other relevant news about debt securities.
Transferring Securities
Malaysian Government debt securities are scripless, so securities transfer is electronic. In the Real-time Electronic Transfer of Funds and Securities (RENTAS) system under Bank Negara Malaysia, transfer instructions are done on a trade-by-trade basis, with the transfer of securities simultaneous with the transfer of funds for payment.
Bondholders receive interest through their cash accounts with Authorized Depository Institutions (ADIs). On interest payment dates, the paying agent uses the Real-time Electronic Transfer of Funds and Securities (RENTAS) system to credit the ADI of the security holder. The ADI then credits the cash account of the securities holder.
There is no ex-date trading under the RENTAS system. Interest payments are done at the end of T+1 (one day following the transaction due date).
Redemption
RENTAS handles the redemption process on the redemption date by debiting and crediting the securities and cash accounts of the ADI of the security holder. The ADI then credits the cash account of the securities client.
To increase liquidity, existing government issues are reopened. Reopenings are the offering of new securities with the same terms and conditions as an existing issue. They are used to increase the size of an outstanding issue. A reopened bond has the same maturity date, security identifier, and coupon rate as the original security. The only difference is that they have a different issue date and usually, a different purchase price based on current market yields.
Similar to new issues, reopening announcements are made via the Fully Automated System for Tendering (FAST). Online, they are posted on the auction calendar along with new issues. Malaysian Government Securities (MGS) are usually reopened by Bank Negara Malaysia. Generally, applications for purchase of a reopened issue follow the same procedure as a new issue. Reopening is done either through tender or private placement.