Bursa Malaysia Securities Expands Market Making Framework

On 24 November 2020, Bursa Malaysia Securities Berhad (“Bursa Securities”) issued Participating Organisations’ Circular No. R/R 13 of 2020 in which it released details of amendments to various regulatory instruments to expand its market making framework. These amendments will take effect on 7 December 2020.
 
We summarise below some of the amendments that are to be introduced:
 
  1. Liberalisation of qualifying criteria for foreign entities
Prior to the amendments, one of the criteria for a foreign entity to be registered as a market maker (“Market Maker”) is that it must, among other requirements, be a foreign securities broker or foreign derivatives broker (or a related corporation of such broker).
 
Rule 4.01(1)(d) of the Rules of Bursa Malaysia Securities Berhad (“BMS Rules”) will be amended by replacing the criteria for a foreign entity to be a foreign securities broker or foreign derivatives broker (or a related corporation of such broker) with a requirement that the entity is a foreign corporation which, among other requirements, is regulated by:
 
  1. a securities or derivatives exchange in a jurisdiction which regulator is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding (“IOSCO MMOU”) or the Declaration on Cooperation and Supervision of International Futures Markets and Clearing Organisations (“BOCA Declaration”) respectively; or
  1. a regulator who is a signatory to the IOSCO MMOU or the BOCA Declaration respectively.
  1. Derivatives Specialists
A new Part C is introduced to the BMS Rules which provides that an entity which has been appointed by Bursa Malaysia Derivatives Berhad as a market maker under the Rules of Bursa Malaysia Derivatives Berhad in respect of Single Stock Futures Contract or Stock Option Contract may apply to Bursa Securities to be a Derivatives Specialist.
 
Where the market maker is a foreign corporation, it must be regulated by either of the following:
 
  1. a securities or derivatives exchange in a jurisdiction which regulator is a signatory to the IOSCO MMOU or the BOCA Declaration respectively; or
  1. a regulator who is a signatory to the IOSCO MMOU or the BOCA Declaration respectively.
A Derivatives Specialist will be permitted to carry out Permitted Short Selling (“PSS”) on the underlying securities of the Single Stock Futures Contract or Stock Option Contract which are Approved Securities (namely any securities traded on Bursa Malaysia that are declared by the Exchange as approved securities under Rule 8.22(5) of the BMS Rules for Regulated Short Selling and Intraday Short Selling) as part of the market making activities of the Derivatives Specialist:
 
  1. Amendments to rules on PSS
Arising from the expansion of the market making framework, the BMS Rules relating to PSS have also been amended. The amendments include, but are not limited to, the following:
 
  1. A Market Maker or a Derivatives Specialist may carry out PSS on the following securities:
  1. a Market Maker for an Exchange Traded Fund (“ETF”) – the ETF and its constituent securities;
  1. a Market Maker for a structured warrant – the underlying securities of the structured warrant which are Approved Securities;
  1. a Derivatives Specialist – the underlying securities of the Single Stock Futures Contract or Stock Option Contract which are Approved Securities;
  1. A Market Maker or Derivatives Specialist is required to carry out PSS only by way of on-market transactions;
  1. A Market Maker for ETF intending to short sell ETF units or constituent securities pursuant to PSS must have entered into an agreement to borrow the ETF units or the constituent securities for the settlement of PSS;
  1. A Market Maker or Derivatives Specialist intending to short sell PSS Securities (namely any securities traded on Bursa Malaysia that are prescribed by the Exchange for the purposes of PSS under Rule 4.15(1) of the BMS Rules) pursuant to PSS must comply with either of the following prior to the execution of the order to short sell:
  1. the PSS Securities to be short sold have been borrowed through Securities Borrowing and Lending (“SBL”) or purchased through Islamic Securities – Selling and Buying Negotiated Transaction (“ISSBNT”), as the case may be; or
  1. a confirmation has been obtained from an Authorised SBL Participant or an Authorised ISSBNT Participant, as the case may be, that the PSS Securities are available for the Market Maker or the Derivatives Specialist to use to settle the sale.
The requirements in paragraph (d) do not apply to an order to short sell ETF units constituent securities pursuant to PSS.
 
It is to be noted that the rules on Regulated Short Selling in Chapter 8 of the BMS Rules and Bursa Securities’ Directive on Regulated Short Selling No. 8-002 (in particular the latter) have also been amended as a result of the expansion of the market making framework.