Securities Commission Malaysia embarks on pilot for blockchain usage in unlisted and OTC market
The Securities Commission (SC) Malaysia has embarked on a pilot project to explore the usage of Distributed Ledger Technology (DLT) or blockchain in the unlisted and OTC (over the counter) market space through its aFINity Innovation Lab. Tan Sri Ranjit Ajit Singh, Chairman of Securities Commission Malaysia spoke about this in a speech in early November.
SC Malaysia expanded its Alliance for Fin Tech community or aFINity programme this year to include “Innovation Labs” which acts as a platform to facilitate the testing of new digital innovations within the finance industry. Since 2015, SC Malaysia has created a regulatory sandboxing approach where regulation is imposed on a graduated scale in line with the growth of the market and complexity of the product. The Lab allows the discussion of innovative business ideas and concepts and the exploration of proof of concept solutions designed to meet specific industry needs.
OTC markets are decentralised markets, without a central physical location, where market participants trade with one another through various communication modes such as the telephone, email and proprietary electronic trading systems, as opposed to trading through a centralised exchange.
Traditionally, the unlisted and OTC market space have operated in an opaque fashion due to limited information availability. By using a distributed ledger as the technology underpinning the market infrastructure, all transactions and market activities would be recorded and made available to all market participants, while still maintaining transaction confidentiality.
Mr. Singh said that the findings from the pilot will be published as an industry blueprint. The blueprint will elaborate upon the technology architecture, key software functions, and development standards which will form the building blocks for interested parties to create such a DLT-based network for unlisted and OTC markets.
ICOs and cryptocurrency trading
In September, SC Malaysia issued a public warning statement on Initial Coin Offerings (ICOs).
A project or venture can raise funding by creating and selling its own cryptocoins or tokens in exchange for cryptocurrencies of immediate, liquid value such as Bitcoin or Ethereum. Startups use this to avoid the rigorous and regulated pathways of going via banks or venture capital firms or doing a regular IPO (Initial Public Offering or the initial offer of shares of previously private company to the public).
Mr. Singh said SC Malaysia continues to stand by that statement, that such schemes, in their current form poses significant risks to investors. He said, “SC strongly encourages investors to fully understand the features of an ICO scheme, and carefully weigh the risks before parting with their monies.”
SC Malaysia is now part of the IOSCO ICO Consultation Network where participating regulators are discussing the latest developments in this space. (International Organization of Securities Commissions is an association of organisations that regulate the world’s securities and futures markets).
At the same time, to facilitate the trading of cryptocurrencies and digital assets and put in place appropriate investor safeguards, SC Malaysia is reviewing relevant regulations and guidelines to facilitate functional and effective use cases of digital assets in the capital market, including secondary market trading of established crypto currency and digital assets.
Centralised bond and sukuk information platform
SC Malaysia has also launched a centralised bond and sukuk (Islamic Bonds) information platform to provide easier access and comprehensive information on corporate bond and sukuk.
The Malaysian bond and sukuk market with a size of RM1.3 trillion, is the 3rd largest market in Asia (relative to GDP) and the world’s largest sukuk market and a major source of funding in the capital market.
However, information on the bond and sukuk market is fragmented across multiple sources and typically only accessible by institutional investors.
The platform, known as the Bond+Sukuk Information Exchange, or BIX, will be a public utility and a cornerstone component of our overall bond and sukuk market infrastructure. It is the first of its kind in the world to consolidate bond and sukuk price and credit information combined with an advanced search function and other analytics to help investors making effective and informed investment decisions.