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Securities Borrowing & Lending & Regulated Short Selling in Malaysia

Securities Borrowing & Lending & Regulated Short Selling in Malaysia. PASLA Conference - March 2014. Framework. SECURITIES BORROWING AND LENDING (SBL). There are currently two SBL models;.

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Securities Borrowing & Lending & Regulated Short Selling in Malaysia

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  1. Securities Borrowing & Lending&Regulated Short Selling in Malaysia PASLA Conference - March 2014

  2. Framework SECURITIES BORROWING AND LENDING (SBL) • There are currently two SBL models; • SBL – Central Lending Agency (SBLCLA) Model where the Clearing House acts as the central lending agency for all SBL activities. • SBL – Negotiated Transaction (SBLNT) that offers an option to borrow and lend on an over-the-counter (OTC) basis. Page 14

  3. SECURITIES BORROWING AND LENDING (SBL) MODELS SBL Central Lending Agency (CLA) Model Principal relationship Principal relationship Principal relationship Lend Information- Borrow Information Borrow Information Lend Information Borrowers Authorised Borrower(AB) (TCPs) Lending Agent (LA) Lender Bursa Securities Clearing (CH) Borrowing Representative (BR) – Local Broker Lending Representative (LR) Fee Fee Fee Fee Shares TCP NTCP Collateral Collateral TCP NTCP TCP Lender’s CDS A/C DESIGNATED RSS/SBL CLR CDS A/C DESIGNATED TCP CDS A/C DESIGNATED MM ETF CDS A/C TCP = Local Brokers NTCP = Local Custodians Shares Potential Fail Trades PSS Trades (AB is a PD for ETF) RSS Trades Framework (Continued) Principal relationship through OTC SBL Agreement SBL Negotiated Transaction (NT) Model Borrow Information Borrow Information Lend Information Lend Information Approved Lender (AL) Approved Borrower (AB) Bursa Securities Clearing (CH) AL’s CDS A/C DESIGNATED RSS/SBL CDS A/C DESIGNATED MM-ETF CDS A/C Shares PSS Trades (AB is a MM for ETF) TCP = Local Brokers NTCP = Local Custodians RSS Trades Page 15

  4. Recent Changes in SBL • New Regulation and Withholding From Buying-in Facility • i) The introduction of a new Regulation to allow Sale before Recall • In general, a person must not sell securities unless he has reasonable grounds to believe he has a right to vest the securities in a purchaser. • A new Regulation was introduced on 9 January 2012 which allows SBL lenders to sell the loaned securities before recalling the loaned securities from the borrower provided the sale of the loaned securities is settled on the settlement date (T+3). • The introduction of Withholding From Buying-in Facility • The obligation to deliver the shares by Lender for the “Sell” transaction is on T+2, whereas the Loan Return arising from a recall can only be initiated by a SBL Borrower on T+3 when the securities purchased from the market are credited into his account. This will result in Lenders being unable to deliver for the “Sell” transaction on T+2. • The following diagram gives an illustration of this process: Page 6

  5. Recent Changes in SBL (Continued) What happens with the introduction of the Withholding From Buying-in Facility? This facility is to provide SBL Lenders to withhold their sell transaction from being bought-in when the SBL loaned securities is sold and recalled on the same day. The withholding from buying-in will be effective for one (1) business day only (T+3). The following diagram gives an illustration of the withholding from buying-in process: The introduction of the Withholding From Buying-in Facility was implemented to the 2 SBL systems on the following dates: SBLNT - 13 January 2012; and SBLCLA - 30 March 2012. Page 7

  6. Recent Changes in SBL (Continued) • Exemption of Substantial Shareholding Reporting • Substantial shareholding reporting is a requirement when an investor has an interest of 5% or more of the aggregate (total) voting shares in a company. • As SBL is deemed to be a loan the Companies Commission of Malaysia has exempted this reporting requirement for Lenders. • 3. Liberalisation of Criteria for Eligible/Approved Securities for SBL and RSS • With this liberalisation, there is a remarkable increase in the number of Eligible/Approved Securities for SBL and RSS, from 100 previously to 218 currently. • Permitted An Approved Reasons For Transfer Arising From Corporate Actions • This permits a borrower to return the relevant securities received arising from corporate actions back to lender under the No Change In Beneficiary Owner approved reasons. • Publication on the Exchange website • Daily RSS trades are currently published on the Bursa Malaysia’s website

  7. SBL – Monthly Outstanding Position RM’Millions RM1,699,069,665 • Notes: • Based on market value of outstanding loans as at last trading day of the month

  8. RSS Monthly Trading Activities RM’Millions

  9. RSS Value vs Market Value December 2013 • Average daily market RSS value RM10,024,108 • Average daily market value RM1,507,205,070 • % of RSS value vs Market Value 0.66% Page 14

  10. Challenges • Insufficient number of lenders to meet the demands of existing borrowers • Lack of understanding and awareness Page 14

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