Bursa Malaysia Berhad (“Bursa Malaysia” or the “Exchange”) will launch a Pilot Market Making Program (“PMMP”) on 1 June 2021. The PMMP aims to increase the liquidity and price efficiency of selected mid to large-cap stocks with low velocity (“Eligible Stocks”).
PMMP is a sandbox initiative that will be undertaken over a two year period. The Exchange will assess the program’s effectiveness based on various quantitative and qualitative factors and other relevant considerations before deciding to make this a longer-term initiative of the equity capital market. These factors include analysis of improvement in velocity, bid-ask spread, as well as the traded value of the Eligible Stocks.
The program will allow eligible market makers to register with the Exchange and carry out market making activities on the Eligible Stocks while adhering to a pre-set list of prescribed trading obligations. The Eligible Stocks are selected based on the following criteria:
- The stock is admitted to the Official List;
- The stock has a daily market capitalisation of RM500 million and above, and a stock velocity of 35% and below; and
- The stock has at least 15% free float[1].
Further to the criteria mentioned above, qualitative factors were also considered, including but not limited to the availability of research coverage in determining the Eligible Stocks. The list of Eligible Stocks will be reviewed and updated every six months from the launch of the PMMP. To enable the operationalisation and efficiency of market making, eligible market makers will be allowed to carry out Permitted Short Selling on the Eligible Stocks according to the Rules and Directives, similar to how other market makers operate on Exchange Traded Funds, Structured Warrants and Single Stock Futures.
Commenting on the launch, Datuk Muhamad Umar Swift, Chief Executive Officer of Bursa Malaysia said, “The Pilot Market Making Program is the first market making framework for stocks in Malaysia. It recognises the important role of market makers as an integral part of the ecosystem. The program offers incentives to attract more market makers, both local and foreign, in providing greater liquidity for less traded and illiquid stocks.”
The PMMP has been developed to support growth in trading by encouraging liquidity and to help attract new investors and market participants that would further enhance the vibrancy of our marketplace. This program will also provide brokers with the opportunity to build their expertise in market making of stocks, as well as onboarding clients with market making expertise.
[1] The criterion of “free float” is as determined by the Exchange using international benchmarks such as the Bloomberg Terminal
