1. Home
  2. Insights
  3. Alerts
  4. January 2023

Bursa Malaysia Securities amends client onboarding requirements for Leveraged and Inverse ETFs

26 January 2023

Bursa Malaysia Securities Berhad (‘the Exchange’) amended the Rules of Bursa Malaysia Securities Berhad (‘the Rules’) and Directive 7.40-001 (Trading in Leveraged and Inverse Exchange Traded Funds) of the Directives of Bursa Malaysia Securities Berhad (‘Directive 7.40-001’) with effect from 20 January 2023 for onboarding of clients by a Participating Organisation (‘PO’) for trading in Leveraged Exchange Traded Funds1 and Inverse Exchange Traded Funds2 (collectively ‘L&I ETFs’).
 
Amendment to the Rules
 
The Rules were amended by replacing sub-rules (1) and (2) of Rule 7.40 with the following:
‘Leveraged ETFs or Inverse ETFs (referred to collectively in this Rule as “L&I ETFs”) are only intended for trading by investors who satisfy such qualifying criteria and requirements as may be prescribed by the Exchange.’ (Emphasis added)
Amendments to Directive 7.40-001
 
The amended paragraphs 1(2) to 1(5) of Directive 7.40-001 now provide, inter alia, as follows:
 
1(2) Pursuant to Rule 7.40, a client must meet the following criteria (‘qualifying criteria’) for trading in L&I ETFs units: 
  1. be a Sophisticated Investor3; 

  2. have a Margin Account4; 

  3. have executed at least five transactions in exchange traded derivatives, or structured warrants within the preceding 12 months; or 

  4. have utilised a performance simulator which simulates trading in L&I ETFs units and undergone an e-learning tutorial developed by the Exchange for trading in L&I ETFs units. 
1(3) Pursuant to Rule 7.40, a PO must ensure that a client provides the following documents to the PO before trading in L&I ETFs units: 
  1. a written declaration confirming the client fulfils one or more of the qualifying criteria; and 

  2. an executed risk disclosure statement in the form prescribed in Appendix 1 of Directive 7.40-001. 
1(4) Notwithstanding paragraph 1(3), if a PO subsequently receives information that the client does not fulfil any of the qualifying criteria, the PO must not allow such client to further trade in L&I ETFs units except to liquidate the current positions.
 
1(5) The requirement in paragraph 1(3) does not apply to a client who falls within the list in Appendix 2 of Directive 7.40-001.
 
Appendix 2 of Directive 7.40-001 provides that each of the following is exempted from complying with paragraph 1(3) of the Directive 7.40-001: 
  • a licensed bank, licensed investment bank or approved money-broker under the Financial Services Act 2013 and its wholly-owned subsidiary that is a nominee company; 

  • a financial institution established under any Act of Parliament and its wholly-owned subsidiary that is a nominee company; 

  • a licensed Islamic bank as defined in the Islamic Financial Services Act 2013 and its wholly-owned subsidiary that is a nominee company; 

  • a prescribed institution as defined in the Development Financial Institutions Act 2002 and its wholly-owned subsidiary that is a nominee company; 

  • a bank licensee as defined under the Labuan Financial Services and Securities Act 2010 and its wholly-owned subsidiary that is a nominee company; 

  • a holder of a Capital Markets Services Licence for the purpose of carrying on the business of fund management, its wholly-owned subsidiary that is a nominee company and its custodian appointed pursuant to section 121 of the Capital Markets and Services Act 2007 (‘CMSA’); 

  • a closed-end fund that is approved by the Commission under section 212 of the CMSA and its custodian in relation to closed-end fund’s investments; 

  • a foreign fund manager; 

  • a stockbroking company who is a member of other recognised stock exchanges defined in the Rules of the Exchange; 

  • a securities dealer who is not a member of other recognised stock exchanges but is authorised to carry out the business of dealing in securities by the relevant authorities in jurisdictions of the recognised stock exchanges defined in the Rules of the Exchange; 

  • a foreign financial institution; 

  • a person appointed by Bursa Malaysia Depository Sdn Bhd (‘Depository’) to be an authorised depository agent and its wholly-owned subsidiary that is a nominee company; 

  • a person appointed by the Depository to be an authorised direct member and its wholly-owned subsidiary that is a nominee company; 

  • a clearing house approved under section 38 of the CMSA; and 

  • a holder of a Capital Markets Services Licence for the purpose of carrying on the business of dealing in securities and its wholly-owned subsidiary that is a nominee company. 
Comment
 
Apart from the introduction of a new directive on cessation of trading in paragraph 1(4) of Directive 7.40-001, the recent amendments to the Rules and Directive 7.40-001 consist mainly of a consolidation of the provisions of paragraphs 1 and 2 of Directive 7.40-001 into paragraph 1 of the amended directive.
 
The full text of the amendments to the Rules and Directive 7.40-001 can be accessed here and here.
 
Alert by Kok Chee Kheong (Partner) of the Corporate Practice of Skrine. 
 
1 A Leveraged Exchange Traded Fund aims to deliver multiples of the daily performance of the index or benchmark (paragraph 2.02 of the Securities Commission Malaysia’s Guidelines on Exchange Traded Funds).
2 An Inverse Exchange Traded Fund aims to provide return or performance that is opposite of the daily performance of the index or benchmark being tracked (paragraph 2.02 of the Securities Commission Malaysia’s Guidelines on Exchange Traded Funds).
3 A Sophisticated Investor is a person who falls within any one of the categories of investors set out in Part I, Schedule 6 or 7 of the CMSA.
4 A Margin Account is an account maintained by a client with a PO to finance, inter alia, the subscription and purchase of securities.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

  • Proud to be a member of
  • connect with us
  •  
  •