Government Debt

Bank Negara Malaysia's (BNM) manages the liabilities of the government, both in Malaysia and abroad. It advises the government on its loan programs, including planning the government securities auction calendar, taking into considerations the terms and timing of the loans and issue of new types of securities. It participates in the monthly Cash Flow Committee meeting chaired by the Treasury to discuss the final details of Government securities issuances. BNM is responsible for trading, registering, settlement and redemption of Government securities through the automated trading and settlement system developed by the Central Bank.

BNM published the rules on RENTAS and FAST, which are linked below.

Corporate Debt and Asset-Backed Securities

The Securities Commission (SC) oversees the issuance of private debt securities (PDS), asset-backed securities (ABS), Islamic securities, and structured products. SC provides guidelines on the offering of these securities and approves private debt securities' prospectuses, which are lodged with the Companies Commission of Malaysia.

Corporations may issue private debt securities without prior assessment by SC, but only if the private debt securities guidelines on transparency have been met. This is in line with SC's disclosure-based regulatory framework for fund raising.

For foreign issuers, the Quick Reference for Information on Cross-Border Bond Issuance and Investment, which is linked below, contains information on bond issuance by nonresidents in Malaysia.

Under BNM’s Foreign Exchange Administration Policies, which are linked below, proceeds of bond issuances are not to be used for refinancing of offshore borrowing and/or financing of investments abroad exceeding MYR10 million in aggregate in a calendar year. The National Bond Market Committee Negative List, which identifies activities where proceeds from PDS and ABS issuances cannot be used, was repealed on 28 March 2005.

The Securities Commission (SC) issues licenses for market intermediaries. Linked below is a list of licensing guidelines and codes administered by SC.

In October 2005, Bank Negara Malaysia (BNM) announced that universal brokers would be transformed into investment banks. Universal brokers were required to merge with a discount house and transferred to the regulatory purview of BNM and SC.

Accounting Standards

The Malaysian Accounting Standards Board (MASB) defines fair value reporting in its published Financial Reporting Standards (FRS) No. 132, Financial Instruments: Disclosure and Presentation, which requires disclosure of information about fair value of financial assets and liabilities. If, for any reason, fair value disclosure is not practicable, this needs to be disclosed along with information about the principal characteristics of the specific financial instrument. FRS 132 is in line with International Accounting Standard (IAS) No. 32 of the International Accounting Standards Board.

Malaysian investors classify investments in bonds as either dealing securities or investment securities. Dealing securities are marketable securities held with the intention of trading in the short term. Investment securities are securities held to maturity. Dealing securities are stated at the lower of cost and market value. Investment securities are stated at cost adjusted for amortization of premium and accretion of discount. As required under FRS 132, fair value or mark-to-market values of investments are disclosed and usually reported in the Management’s Discussion & Analysis of Financial Performance section.

Exposure Draft 35 (revised), issued in December 2004 by MASB, is similar to IAS No. 139, which deals with mark-to-market for financial instruments.

In October 2004, Bank Negara Malaysia (BNM) revised its disclosure requirements for banks to align them with international accounting standards. Effective 2005, BNM’s Guidelines on Financial Reporting for Licensed Institutions requires licensed institutions to classify debt securities investments as either held-to-maturity, available-for-sale, or held-for-trading. Available-for-sale and held-for-trading securities are measured at fair value (mark-to-market), while held-to-maturity securities are measured at amortized accreted cost using the effective interest rate method.

Investment Funds

The Securities Commission (SC) published its Guidelines on Unit Trust Funds to govern operation and administration of Malaysian unit trust funds. They require daily valuations of selling and repurchase prices of unit trust funds. Schedule D of the Guidelines on Unit Trust Funds require net asset value (NAV) calculation to be based on market price, if available, or based on fair value. Fair value methods should be verified by a fund auditor, approved by the trustee, and disclosed in the fund prospectus.

Capital Adequacy Regulations

Since 2004, mark-to-market has been used by financial institutions in determining capital adequacy ratios. For selling and repurchase prices, Malaysia is adopting a two-phased approach for implementing Basel II beginning in January 2008.

Interest income from bonds or securities issued by a specified list of issuers is tax exempt. Details of tax structures and exemptions are available through the Federal Treasury of Malaysia link below.

Labuan International Offshore Financial Centre (LFX) offers a number of tax incentives for bond investors and issuers. A list of these incentives can be found by following the link below.

A matrix of the taxation for different types of bonds is also provided in the table below.