Both domestic and foreign investors can participate in the trading of government and corporate bonds in Malaysia. To protect the interest of investors, regulations on bondholder rights, bankruptcy, prevention of fraud, and ethics are discussed in this section.

Investor Participation—Retail Investors

There are no specific regulations restricting retail investors from participating in the Malaysian bond market. Generally, dealers or other intermediaries require a minimum investment amount.

To increase trading efficiency, the Securities Commission (SC) liberalized Central Depository System (CDS) account requirements in October 2005, widening the group of those allowed to hold securities on behalf of others. These exempt authorized nominees are now allowed to hold securities in omnibus CDS accounts.

SC has a special web site for retail investors—the Malaysian Investor. The site provides helpful information on different securities, including bonds.

Investor Participation—Foreign Investors

Foreign investors can invest in Malaysian bonds. There are no restrictions on payments in foreign currency to nonresidents for repatriation of principal, profits, dividends, interest, and commissions.

The Quick Reference for Information on Cross-Border Bond Issuance and Investment contains information on bond investments by nonresidents in Malaysia.

Recent amendments to exchange control regulations enhanced nonresidents’ access to domestic credit, and liberalized payments for MYR assets. Nonresident investors of MYR-denominated bonds issued by multilateral development banks and multinational corporations can enter into forward foreign exchange contracts with onshore licensed banks to hedge currency risks. Otherwise, they can only enter into forwards of up to three working days’ maturity for settlement purposes.

Entities incorporated or registered in the Labuan International Financial Centre (LFX) are declared nonresidents for investment purposes.

Investor Protection—Bondholder Rights

Bondholder rights are protected under the Companies Act 1965 and Securities Industry Act 1993, and in various amendments.

Under the Companies Act, creditors, including bondholders, can file a winding-up petition for a company when the debtor is unable to pay his debts. When a winding-up order is made, the court appoints a liquidator who oversees the liquidation process.

Foreign creditors have the same rights as local creditors under Malaysian laws.

Under the Securities Industry Act, all bond issuers are required to enter into a trust deed with an appointed trustee. The trust deed contains bond provisions, covenants, and other requirements set by the Securities Commission (SC). The trustee's role is to safeguard the interests of the bondholders as set out in the trust deed and in the Securities Industry Act.

Bond documents (e.g., prospectus, term sheets) also contain covenants and relevant default clauses specific to the bond issue that provide additional protection to bondholders. The SC's website provides copies of term sheets and/or principal terms, and conditions of bond issuances.

A study on insolvency law regimes in Malaysia, which is linked below, also covers creditor rights.

The Asia-Pacific Restructuring and Insolvency Guide 2006 provides information on creditor rights in Asia-Pacific countries. The link for Malaysia is provided below.

Investor Protection—Prevention of Fraud

False trading, manipulation, and fraud under Division 1 of the Securities Industry Act of 1983 are liable to result in fines and imprisonment. The link below provides comprehensive rules on prohibited conduct and insider trading.

Bank Negara Malaysia (BNM) oversees foreign exchange controls and regulations of capital markets. A link to BNM’s foreign exchange administration rules—applicable to both residents and nonresidents is provided below.

A summary of relevant regulations is also available in the Annual Report on Exchange Arrangements and Exchange Restrictions, published by the International Monetary Fund. The report is available in hard copy only.

Capital Inflow

Nonresidents are allowed to purchase bills of exchange, private debt securities, Cagamas bonds or notes, government securities, treasury bills, shares, and warrants listed on Bursa Malaysia. They are also allowed to borrow up to MYR10 million from licensed onshore banks in Malaysia to finance MYR assets.

Capital Outflow

Investments in Foreign Currency Assets

There are no limits for resident individuals and corporate residents when no domestic MYR borrowing is required or for those investing directly abroad with their own foreign currency funds.

Resident individuals with domestic MYR borrowing are allowed to invest up to MYR1 million per year if there was a conversion of MYR and up to MYR10 million if funded using foreign currency borrowing.

There are no limit for resident companies that have their own foreign currency funds or if their funds are from proceeds of listing through initial public offerings of Bursa Malaysia.

Resident companies who made MYR conversions are allowed to invest up to MYR50 million per year. If funding was obtained using foreign currency borrowing, the investment limit is up to MYR100 million per year. Insurance companies may invest abroad up to 10% of their margin of solvency, the amount for which they are capable of meeting their financial obligations. Islamic insurance, or takaful, operators can also invest up to 5% of their total assets.

Insurance companies and takaful operators may also make foreign investments up to 50% of the net asset value of the investment-linked funds they market.

Unit trust management companies have no limit if investments are made using Islamic funds. If they are investing using conventional funds, they can invest up to 50% of the net asset value.

Fund management companies also have no limits in using Islamic funds. If they are investing using conventional funds and if they have no domestic MYR borrowing, they are allowed to invest up to 100% of their total funds. However, if they require domestic MYR borrowing, they are allowed to invest only up to 50% of total funds managed.

Divestment of Income from Investments

Nonresidents are free to repatriate funds from divestment of MYR assets, or profits and dividends arising from their investments, as long as repatriations are made in foreign currency (except the currency of Israel).

The quant shop provides a monthly RAM quant shop Malaysian Government Securities Bond Index, which can be found by following the link below.

The iBoxx ABF Index Family is a series of indexes that serve as benchmarks under the second phase of the Asian Bond Fund (ABF2). The Malaysian bond index is included with the two Pan-Asia indexes. The International Index Company and the Executives Meeting of East Asia and Pacific Central Banks developed the indexes. A link for the Malaysian IBoxx ABF Index Family is provided below.

Also linked below is information on the ABF Malaysia Bond Index Fund. It is the first exchange traded fund and the first indexed bond fund to be listed on the exchange.

The Employee Provident Fund Act (revised several times) allows participants to invest some of their contributions in the capital markets via mutual funds and/or unit trusts. Under the Ninth Malaysia Plan, the Employee Provident Fund is expected to invest, with the Pensions Trust Fund, around MYR15 billion in 880 projects.

The Pension Trust Fund was transformed into an independent statutory bond, the Retirement Fund under the Retirement Fund Act of 2007, which replaced the Pension Trust Fund Act of 1991.

The Social Security Organization (SOCSO) provides benefits to workers through the Employment Injury Insurance Scheme and the Invalid Pension Scheme. SOCSO invests at least 40% of its funds in government bonds or in bonds issued by government-linked organizations. It can invest up to 30% of its funds in equities and no more than 5% in property.

The insurance and investment regulations in Malaysia are facilitated and controlled by Bank Negara Malaysia (BNM). Islamic insurers are also regulated by BNM under the Takaful Act of 1984.

In July 2005 the central bank, Bank Negara Malaysia (BNM), announced that the Malaysian ringgit (MYR) would return to a managed float following a seven year peg to the US dollar (USD). BNM monitors the rate against a basket of currencies to maintain “fair value.”

BNM administers currency exchange controls in accordance with the Exchange Control Act 1953, which was later amended effective January 2007. The amendment act strengthens the enforcement power relating to unauthorized dealings in foreign currency. It also enables the BNM to enhance the surveillance liability from issuance or obtaining guarantees. It also empowers the Controller of Foreign Exchange (the Controller) to grant permissions and enforce provisions of the Act.

The licensing and regulation of the money changing business falls under the Money-Changing Act 1998. All foreign currency transactions must be coursed through commercial banks or moneychangers.

All domestic trade settlements must be in MYR while export settlements must be made in foreign currency. Residents paying another resident in foreign currency require BNM approval.

Under the Offshore Companies Act 1990, entities established in Labuan IOFC are declared nonresidents for exchange control purposes once incorporated or registered. Offshore entities in Labuan can deal freely with nonresidents in foreign currencies except those of Israel, Serbia, and Montenegro. Licensed Offshore Banks in Labuan can receive fees, commissions, and dividends or interest payments in MYR from residents. The USD/MYR market is unavailable in the Labuan offshore market and there is no non-deliverable forward market.

In May 2008, BNM issued the Liberalisation of the Foreign Exchange Administration Rules, which provided for further liberalization of borrowing foreign currencies as well as borrowing and lending MYR between residents and nonresidents. Also linked below is BNM’s list of Foreign Exchange Administration Rules which provides circulars on amendments in foreign exchange rules in Malaysia.

Import/Export of Currencies

Domestic Currency—Residents and nonresidents importing and exporting notes and coins exceeding MYR1,000 per person require Controller approval.

Foreign Currency—There are no limits on the importation of foreign currencies by nonresidents. Amounts in excess of USD2,500 must be declared upon arrival. Export of foreign currencies by nonresidents is allowed up to the amount brought into the country. Residents are allowed to export foreign currencies up to the equivalent of MYR10,000, with larger amounts requiring Controller’s prior approval.

Domestic/Foreign Currency Accounts

Resident Accounts—Residents can maintain foreign currency accounts (FCA) with licensed onshore banks and Labuan offshore and overseas banks for any purpose. Residents are also allowed to maintain joint FCA accounts for any purpose. Residents without domestic credit facilities are free to convert any amount of MYR for credit to FCAs. Residents with domestic credit facilities are allowed to convert MYR into foreign currency for deposit to FCAs subject to investment limits abroad up to MYR50 million per calendar year (by companies) or MYR1 million per calendar year (by individuals).

Nonresident Accounts—Nonresidents can maintain FCAs with licensed banks without restriction. They can open MYR accounts with no overnight or withdrawal limits. Nonresidents have no limits on FCAs and have no restrictions on the inflow and outflow of funds.

A non-resident may open and maintain any number of external accounts with any onshore financial institutions. They have no restrictions on the amount of MYR funds to be retained in their external accounts. They may also use their external accounts for payments to residents or for purchase of ringgit assets or services provided in Malaysia.

Borrowing/Lending

Borrowing in foreign currency by residents

A resident company is free to borrow any amount of foreign currency from its nonresident non-bank parent company, other resident companies within the same corporate group in Malaysia and from licensed onshore banks. Individuals and resident companies are also free to refinance outstanding approved foreign currency borrowing which includes principal and accrued interest.

Borrowing in MYR by residents from nonresidents

A resident company may borrow MYR, including through the issuance of MYR-denominated redeemable preference shares or loan stocks of any amount from its nonresident non-bank company. There is also up to MYR1 million in aggregate from nonresident non-bank companies and individuals for use in Malaysia. Resident individuals are allowed to borrow up to MYR1 million in aggregate for nonresident non-bank companies and individuals.

Lending in MYR by residents to nonresidents

Resident companies and individuals are allowed to lend MYR of any amount to nonresident non-bank financials companies and individuals to finance activities in Malaysia. Licensed onshore banks are allowed to lend in MYR, any amount to nonresident nonresident non-bank companies and individuals to finance activities in the real sector.