The Netting of Financial Agreements Act 2015 comes into force

PETALING JAYA: The Netting of Financial Agreements Act 2015, which provides a legal framework governing close-out netting for financial transactions in Malaysia, came into force yesterday.
The Act, which is in line with international practices, provides assurance that the close-out netting mechanism for financial transactions is enforceable under the law.
"Close-out netting is an important risk management mechanism which is used by financial institutions and other financial market participants in financial derivative transactions and repurchase transactions," said the Finance Ministry in a statement yesterday.
According to the ministry, the enforceability of close-out netting will provide credit risk reduction benefits by allowing counterparties to net off credit risk exposures instead of having gross exposures, and hence improve operational efficiency and reduce systemic risk of the financial system.
"With the Act coming into force, efficiency of the financial markets in Malaysia will be enhanced as Malaysian banks are able to deal more competitively with foreign counterparties globally and develop new hedging instruments and innovative financial products to corporations, businesses and consumers," it said.
It added that the Act will also facilitate further development of a vibrant and competitive financial market in Malaysia.