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Securities Commission Malaysia embarks on pilot for blockchain usage in unlisted and OTC market

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.

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