SINGAPORE: Bank Negara Malaysia on Friday (Aug 18) said that its recent statement which criticised the Singapore Exchange’s (SGX) trading of ringgit futures was meant for Malaysians.
In a news conference, Malaysian central bank governor Muhammad Ibrahim said: “Our statement is actually for those market players in Malaysia. We want to remind them that any trading of dollar ringgit outside Malaysia ... is illegal, it’s not allowed for Malaysian players.
“That statement is not meant for anybody outside Malaysia because we don’t have any jurisdiction over those engaged in illegal activities outside Malaysia. But for those that engage in that transaction within Malaysia, that will be against the rule, the prevailing rule, and if they are found to be engaging in those illegal activities, we will certainly take action, it is adequately provided under the law.”
He added: “It’s also important to note that these are not new policies, not new regulations or new rules. The rules have always been there, we are just highlighting that the ringgit is a non-internationalised currency and it should not be traded outside.”
Mr Ibrahim said any international bank that has an operating licence in Malaysia could face legal action if it facilitates ringgit futures trading on the Singapore Stock Exchange and the Intercontinental Exchange.
He added that any ringgit transaction in Singapore involving a Malaysian client and a bank licensed in Malaysia will be subject to Malaysian law.
Mr Jimmy Zhu, chief strategist at Fullerton Markets, said it is not surprising that Bank Negara Malaysia has focused its enforcement action on international banks which are licensed in Malaysia.
“Such moves are set to drive the volatility of emerging market currencies higher. Some regulators could find it necessary to curb excessive speculative positions in the market,” he said.
Mr Nizam Ismail, a RHTLaw Taylor Wessing partner, agrees with Mr Zhu.
“As Bank Negara has supervisory oversight over these banks, it would be administratively easier for the central bank to apply pressure. There would be legal challenges for Bank Negara to assert any enforcement action against entities outside of Malaysia, especially if it is unclear whether Malaysian domestic laws have any application to ringgit futures contracts created outside of Malaysia, to begin with.”
Bank Negara has previously taken measures to restrict the trading of the ringgit offshore.
In November last year, it forced currency traders overseas to stop driving the ringgit lower. It also demanded that banks operating in Malaysia sign a commitment to cease trading of the currency on the offshore non-deliverable forward market.
The move came after it saw how onshore rates were taking cues from abroad, as well as the fact that much of the trading offshore was speculative and had a huge influence on the ringgit's value against the US dollar.
Bank Negara recently said that the supply of and demand for foreign currencies became more balanced after the implementation of its measures.
Mr Stephen Innes, the head of trading (Asia Pacific) at OANDA, noted that the measures Bank Negara took benefitted Malaysia because it stopped “all the waves of currency speculation”.
“Clearly the Malaysian central bank remains vigilant and on guard for any unwanted speculation on the ringgit. But certainly investors would have expected that Bank Negara Malaysia would have been more receptive to reintroducing the Malaysian ringgit to global markets via a highly regulated exchange."
He also noted that allowing international investors access to more freely tradable and open markets would have been great for the Malaysian capital market, citing that international investors can easily hedge their ringgit exposures.
The SGX rolled out the trading of ringgit futures on its exchange last month.
According to SGX’s Market Statistics Report for the month of July, trading volume of the ringgit derivative contract on the Singapore market came in at only 172 trades - compared to 2,202 for the Japanese yen and 4,536 for the Korean won.
The bourse’s website also states that its forex products are tools to limit the impact of forex volatility and manage risk. It likewise said that SGX is not authorised to list the trading of any contract without the prior approval of the Monetary Authority of Singapore.