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.
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.
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.
Nonresidents are allowed to purchase bills of exchange, private debt securities, government securities, shares, and warrants listed on Bursa Malaysia.
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. Resident companies who made MYR conversions are allowed to invest up to MYR50 million per year.
Insurance companies and takaful operators may also make foreign investments up to 100% of the net asset value or the total funds invested by resident clients without domestic MYR borrowing. However, if they require domestic MYR borrowing, they are allowed to invest only up to 50% of nest asset value or the 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.
Malaysia boasts of a developed unit trust industry. Total net asset value of unit trust funds in Malaysia has grown exponentially from MYR87.4 billion in end-2014 to MYR346.6 billion in end-2015. Its share to the Bursa Malaysia capitalization has also doubled from 12.1% to 20.4% in the same period.
The Securities Commission Malaysia (SC) has also continued to support and develop the industry particularly in streamlining the process of approving the funds developed by the market.
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.
Import/Export of Currencies
Domestic Currency—Residents and nonresidents are free to import and export notes not exceeding USD10,000 equivalent.
Foreign Currency—There are no limits on the importation of foreign currencies by nonresidents. Amounts in excess of USD10,000 must be declared upon arrival.
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 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. If borrowing from non-resident entities which are not part of its group, a MYR100 million limit is applicable. For individuals, are MYR10 million limit is applicable if borrowing from individuals other than immediate family members.
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 non-bank companies and individuals to finance activities in the real sector.