Regulated short selling of listed securities in Malaysia commenced on September 30 1996. On August 28 1997, at the height of the Asian financial crisis, the Securities Commission suspended securities borrowing and lending (SBL) in respect of securities listed on the local stock exchange, Bursa Malaysia Securities Berhad (Bursa Securities).
With effect from January 3 2007, a system (Bursa SBL System) for borrowing and lending was reintroduced for securities listed on Bursa Securities. All securities listed on Bursa Securities are traded scripless through the central depository system established under the Securities Industry (Central Depositories) Act.
The Bursa SBL System is a facility offered by Bursa Malaysia Securities Clearing in the role of a central lending agency. Bursa Clearing specifies the shares which are eligible to be borrowed, presently 70 counters. The borrowed securities may only be used for prescribed purposes. Only approved local licensed dealers may borrow securities from Bursa Clearing as principal on standard terms, subject to provision of collateral (of the permitted types) up to the required margin, which are valued subject to haircuts determined by Bursa Clearing. Any other person who wishes to borrow the eligible securities has to borrow them from a borrower under a contract to be negotiated between them.
Bursa Clearing borrows securities from persons approved to be a lending participant under a standard form contract. The lending participant, unless a person entitled to be a lending agent, has to appoint a clearing participant approved by Bursa Clearing to be a lending agent. Each offer to lend to Bursa Clearing must be a minimum of 50,000 units.
The rules and requirements affecting Bursa SBL, all of which came into effect on January 3 2007 can be found on the websites of the Securities Commission and Bursa Securities and include:
- the Guidelines on Securities Borrowing and Lending issued by the Securities Commission on December 27 2006 which set out the broad regulatory framework for Bursa SBL System and directives given by the Securities Commission to Bursa Clearing.
- the SBL Circulars, which includes the application to be approved as a lending participant, the application to be approved as a borrower, the terms and conditions for a lending participant and lender, and the terms and conditions for a borrower, all in standard form. These are binding on all relevant parties to a Bursa SBL transaction.
- Relevant rules and directives of each of Bursa Clearing, Bursa Securities and the approved central depository, Bursa Malaysia Depository.
Reintroduction of Bursa SBL is a welcome move, and satisfies one recommendation in the 10-year Capital Market Masterplan published by the Securities Commission in 2000.
By Christina Kow