Bank Negara engages with regional participants on forex liquidity, onshore hedging

KUALA LUMPUR : Bank Negara Malaysia (BNM) interacted with 60 participants from Hong Kong, Singapore, Thailand and Malaysia via video conferencing to discuss issues and queries on the financial market development measures last Friday.
BNM featured in a workshop on "Onshore Foreign Exchange Hedging for Non-Resident Investors", organised in collaboration with Asia Securities Industry and Financial Market Association and Global Financial Markets Association and hosted by CIMB Bank.
The discussions focused on onshore hedging, liquidity in the foreign exchange (forex) market and operational arrangements for investments by fund managers.
In a statement yesterday, BNM acknowledged that participants, made up of global custodian banks, global fund managers, index providers and institutional investors, raised concerns over low levels of liquidity in the ringgit forex market since the introduction of measures and ban on non-deliverable forward trading.
BNM noted that the onshore forex market is going through a period of adjustment and it has been more active in supplying liquidity on both sides to address demand and supply mismatches.
"Nonetheless, overall, the volume has been sustained where more two-way flows had been observed from resident exporters and importers contributing towards liquidity in the onshore market. When the measures are fully effected, the market would be able to self-intermediate the flows without the need for BNM to participate actively," the central bank said.
Over the past four years, BNM said, the overall forex turnover averaged US$2.5 trillion. It said the average daily trading volume, which indicates the ability to transact in the forex market, is US$8.6 billion, of which spot trading volume since 2016 stands at US$3.4 billion, while swap and forward transactions account for US$4.7 billion and US$536 million, respectively.
The statement said fund managers sought clarification on the rules relating onshore hedging and also touched on the Appointed Overseas Office Framework and how foreign fund managers can leverage on the Appointed Overseas Office arrangement to access the onshore financial market.