Policy Document on Framework on Electronic Trading Platforms for Money Market and Foreign Exchange Market

On 8 November 2019, Bank Negara Malaysia (‘BNM’) issued a Policy Document on the Framework for Electronic Trading Platforms that comes into effect on 11 November 2019.
 
The Policy Document applies to following market participants in the wholesale financial markets –
 
  1. approved money brokers operating electronic broking platforms; and
  2. operators of electronic trading platforms.
An ‘electronic broking platform’ refers to any facility, system, trading venue, marketplace or organisation which, by electronic means, brings together market participants to conclude buying and selling of financial instruments in the money market or foreign exchange market based on established methods or standard market conventions, and brokerage fees paid as consideration for the conclusion of trade. 
 
An ‘electronic trading platform’ refers to any facility, system, trading venue, marketplace or organisation which, by electronic means, brings together market participants to negotiate, conclude or execute buying and selling of financial instruments in the money market or foreign exchange market based on established methods or standard market conventions, and includes an electronic broking platform.
 
The Policy Document does not apply to –
 
  1. an operator of a recognised market registered, or a stock market of an approved stock exchange, under the Capital Markets and Services Act 2007 which offers facilities to trade financial instruments other than in the money market or foreign exchange market;
  2. a stock market operated by an overseas stock exchange which is under the regulatory or supervisory oversight of the relevant authority, or any facility offered by such stock exchange; or
  3. a proprietary single-bank platform offered solely for bilateral transactions undertaken with the bank for financial instruments in the money market or foreign exchange market.
A market participant who intends to operate an electronic trading platform is required under the Policy Document to obtain the prior written approval of BNM. The documents and information to be provided in an application to BNM are set out in paragraph 8.3 of the Policy Document. An application for renewal of an approval must be submitted at least 90 days before the expiry of the approval period. Any approval, or renewal thereof, is for a three-year period or such other period as may be specified by BNM and may be subject to conditions. 
 
An approved platform operator, namely (i) an approved money broker which operates an electronic trading platform; and (ii) any other market participant which operates an electronic trading platform, whether or not for any remuneration, fee, commission or subscription, is permitted to offer ancillary services or functionalities in addition to its electronic trading platform services but is required to notify BNM in writing prior to its offering of such additional services and functionalities.
 
An electronic platform operator is required to comply with the following requirements set out in the Policy Document -
 
  1. Operational Requirements – these include –
  1. establishing and implementing effective policies on due diligence on prospective users prior to their onboarding;
  2. establishing, maintaining and publishing proper rules, criteria and procedures for the use of its electronic trading platform;
  3. establishing and implementing information technology security and protection policies for the operations of its electronic trading platform;
  4. establishing and implementing policies and procedure for record keeping, which must at a minimum, include data and details of transactions executed on its electronic trading platform and of trade disputes and their resolution;
  5. conducting a risk assessment prior to the use of cloud storage services if the approved platform operator proposes to use such services to warehouse its data;
  6. establishing and implementing business continuity arrangements in relation to its electronic trading platform to address disruptive incidents, including system failure; and
  7. conducting a thorough testing of system functionalities and capabilities before deployment and conducting periodic capacity testing of critical systems;
  1. Governance Requirements – these include –
  1. responsibility of the board of an approved platform operator to establish and oversee the effective implementation of the policies and procedures (including policies and procedures on management of conflicts) relating to the operations of an electronic trading platform; and
  2. responsibility of the management of an approved platform operator for the effective implementation of the policies and procedures established by the board;
  1. Reporting Requirements – these include the submission by an approved platform operator of a complete list of its onshore users at the end of each calendar quarter and other information, in particular statistical and transactional information, on and relating to the electronic trading platform as may be required by BNM from time to time.
Approved platform operators are encouraged to monitor the intraday trading activities on their electronic trading platforms (e.g. capacity utilisation) and inform BNM of any irregularities in the trading patterns.
 
The Policy Document supersedes the Guidelines on Electronic Broking System by Licensed Money Brokers issued on 1 August 2005.