BNM move on ringgit trading in Singapore beneficial

KUALA LUMPUR, Aug 20 – Bank Negara Malaysia’s (BNM) move to warn banks with operating licences in Malaysia of legal action if they facilitate ringgit futures trading on the Singapore Stock Exchange and the Intercontinental Exchange will be to the Malaysian currency’s advantage, financial analysts have said.

Stephen Innes, head of trading (Asia Pacific) at foreign exchange company Oanda, was quoted by Channel News Asia (CNA) as saying that the measures BNM 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 was quoted as saying.

Nizam Ismail, a partner with law firm RHTLaw Taylor Wessing was quoted as saying that as BNM had supervisory oversight over the banks, it would be administratively easier for the central bank to apply pressure on them.

He however said there would be legal challenges for BNM to assert any enforcement action against entities outside of Malaysia, especially if it was unclear if Malaysia’s domestic laws can apply to ringgit futures contracts created outside the country.

BNM governor Muhammad Ibrahim told a press conference on Friday that any ringgit transaction in Singapore involving a Malaysian client and a bank licensed in Malaysia will be subject to Malaysian law.

“The law specifically says that residents, which include individuals and banks operating here, if they engage in any illegal activities in contravention of the Financial Services Act, we will take action,” he said.

BNM had stated the week before that the introduction of ringgit futures on the Singapore and Intercontinental Exchange was inconsistent with Malaysia’s policies.

Muhammad was also quoted by CNA as saying that the statement was for 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,” he added.

“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 for under the law.”

In November last year, BNM forced currency traders overseas to stop driving the ringgit lower and demanded that banks sign a commitment to cease trading the ringgit on the offshore non-deliverable forward (NDF) market.

Jimmy Zhu, chief strategist at Fullerton Markets, reportedly said it was not surprising that BNM had focused its enforcement action on international banks licensed in Malaysia.

“Such moves are set to drive the volatility of emerging market currencies higher,” he was quoted as saying by CNA.

“Some regulators could find it necessary to curb excessive speculative positions in the market,” he added.

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