Bank Negara issues Exposure Draft Policy Document on Islamic Collateralised Funding

05 October 2023

1. a licensed Islamic bank, including a licensed international Islamic bank, under the Islamic Financial Services Act 2013 (“IFSA”); 


2. a licensed bank or licensed investment bank under the Financial Services Act 2013 (“FSA”); and 


3. a prescribed institution under the Development Financial Institutions Act 2002, 

1. set out the scope of an SBBA transaction and a CCM transaction that can be conducted by a banking institution participating in the IIMM; 


2. set out regulatory requirements and BNM’s expectations in relation to an SBBA transaction or a CCM transaction entered into by a banking institution; 


3. promote sound risk management practices by a banking institution for the conduct of an SBBA transaction or a CCM transaction; and 


4. ensure compliance by a banking institution with Shariah principles when it enters into an SBBA transaction or a CCM transaction. 

1. in the context of SBBA, an amount to be added to the original price in order to arrive at the sale price for which an SBBA buyer will sell back SBBA Securities or their equivalent to an SBBA seller; 


2. in the context of CCM, an amount to be added to the cost price at which a CCM pledgee sources a commodity from the market to arrive at the sale price at which the CCM pledgee sells the commodity to a CCM pledgor, 

1. an outright purchase of SBBA securities by an SBBA buyer from an SBBA seller at an original price; 


2. a promise, which may be in any of the following forms: 

3. an outright sale of the same or equivalent SBBA securities by the SBBA buyer to the SBBA seller; 

1. an outright sale of SBBA securities by an SBBA seller to an SBBA buyer at an original price; 
2. a promise, which may be in any of the following forms: 

3. an outright purchase of the same or equivalent SBBA securities by the SBBA seller from the SBBA buyer; and 

1. an SBBA transaction or a reverse SBBA transaction involving SBBA securities denominated in ringgit or foreign currency, including any outright sale or purchase of SBBA securities with an intention to repurchase or resell the SBBA securities at a future date and agreed price; or 


2. a CCM transaction or a reverse CCM transaction, including any pledge of CCM securities with an intention to repledge the CCM securities at a future date and agreed price. 

1. The conduct of an SBBA transaction or a CCM transaction must be in line with the principle of professionalism and integrity, as outlined under the Principles for a Fair and Effective Financial Market for the Malaysian Financial Market issued by BNM. 


2. A banking institution must not enter into an SBBA transaction or a CCM transaction which limits the availability of SBBA securities or CCM securities with intention of creating a false or misrepresented market in SBBA, CCM, SBBA securities or CCM securities. 


3. For SBBA, the legal ownership of the SBBA securities sold under an SBBA or reverse SBBA shall be transferred to the purchaser of the SBBA securities. 


4. For CCM, the CCM securities pledged by a CCM pledgor under a CCM transaction may be transferred to the CCM pledgee. 


5. The maximum tenure of an SBBA transaction or a CCM transaction must not exceed five years. 


6. The standard lot for an interbank SBBA transaction or a CCM transaction involving ringgit is Ringgit Malaysia ten million, whereas an SBBA transaction or a CCM transaction involving foreign currency may be based on the standard lot or minimum market lots practised in the relevant markets of such foreign currency. A banking institution that wishes to transact an SBBA transaction or a CCM transaction for an amount which is different from the standard lot or minimum market lots may specify the amount when requesting for, or providing, quotes. 


7. Prior to undertaking an SBBA transaction or a CCM transaction, a banking institution shall, among others, ensure that: 

1. in the case of an SBBA transaction, the absolute transfer of the legal title of the SBBA securities from the seller to the buyer, including any security transferred through substitution or mark-to-market adjustment; 


2. marking-to-market of transactions; 


3. use of risk management tools including haircut and margin maintenance, where relevant; 


4. events of default and the consequential rights and obligations of the parties, including provision on close-out netting; 


5. full set off of claims between the parties to the transaction in the event of default; 


6. the rights of the parties regarding substitution of SBBA securities and CCM securities and the treatment of coupon payments in respect of the SBBA securities and CCM securities subject to it; and 


7. the agreed governing law of the agreement. 

1. establish a risk management framework which enables identification, measurement and continuous monitoring of all relevant and material risks arising from all SBBA transactions or CCM transactions; and 


2. formulate and implement risk management measures to address risks arising out of an SBBA transaction or a CCM transaction, including counterparty credit assessment, net counterparty exposure limits, risk mitigation techniques involving the use of prudent haircuts, margin maintenance and timely margin call to maintain effective control of risk exposure.