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Bursa Malaysia today announced the availability of its market making framework for Exchange Traded Funds (ETF) and Structured Warrants. The framework is intended to provide a regularised platform for market makers to carry out market making activities in ETFs and Structured Warrants with the primary aim of improving capital market efficiency and liquidity.
Chief Executive Officer of Bursa Malaysia Berhad, Dato' Yusli Mohamed Yusoff said, "The Exchange is focussed on implementing measures that can help drive liquidity to the market. Market makers play a pivotal role in providing immediacy, orderly price movements and price discovery. For investors, the positive impact of market making is that it promotes greater investor confidence as there is liquidity."
Market makers can bring about stabilisation for any short-term price fluctuation as they are able to promote an orderly price movement from one level to another. Further, market makers are able to facilitate the price discovery process as they have a better view than most traders due to their specialised obligations towards certain instruments and will be able to put the appropriate bid and ask quotes. For the capital market, market making reduces risk and asymmetric information through improved market efficiency and better price discovery process.
Dato' Yusli said that this framework will focus initially on ETFs and Structured Warrants in response to the immediate market needs of issuers. "There is a need to promote the growth of ETFs and this can partly be achieved through the participation of market makers. To that end, we will be providing clearing fee incentives to market makers of ETFs until 31 December 2012."
The launch of Structured Warrants market making is in line with the introduction of Securities Commission's Guidelines on Structured Warrants which allows an issuer to opt for market making as means to provide liquidity in addition to the current placement method. Market making would also complement a new class of equity derivatives in the form of put warrants planned for August 2009. The introduction of put warrants does not only improve product breadth to cater to market needs but is also a positive progression towards a mature capital market.
Dato' Yusli added, "Through market making, the time-to-market for listing of structured warrants from the date of the term sheet could be reduced from the conventional 10 market days to as soon as one market day."
The market making framework provides for the participation of foreign market makers in addition to local market makers. Through this framework, qualified foreign market makers can market make from offshore centres without the need to set up offices in Malaysia. Eligible corporations can be admitted to become a market maker by registering with Bursa Malaysia.
The formalised market making framework will replace the voluntary market making practice in the market. Existing issuers and participants wishing to undertake market making for ETF and structured warrant are required to register with Bursa Securities within 3 months.
Key Highlights on the market making framework:-
- Registration of Market Makers
Local stockbrokers, local licensed banks, qualified foreign securities or derivatives brokers from recognised jurisdictions, and their respective locally-incorporated related companies, are eligible to apply to Bursa Malaysia to be registered as market makers and they will be responsible for their market making activities in accordance with the rules of the Exchange.
- Market Making Obligations
A market maker will provide competitive two-way quotes for an expected time presence by quoting a minimum bid and offer size within a certain price spread. A market maker who is not a Participating Organisation (PO) (stockbroker), will be required to route the orders through a PO.
- Market Making Incentives
To encourage participation of market makers in the ETF market, relevant incentives will be granted to such market makers who meet their market making obligations. These incentives include :-- Rebate of 50% on Clearing Fee in relation to ETF units, and their constituent securities from creation and redemption activities or Permitted Short Selling;
- Waiver of Transfer Fee applicable to transfers of ETF units and constituent securities from creation and redemption activities; and
- Waiver of Securities Borrowing & Lending (SBL) Processing Fee and Borrowing Fee in relation to borrowing of ETF units and constituent securities for Permitted Short Selling.
The performance of market makers will be monitored by Bursa Malaysia through an internal monitoring system that has been developed to track market maker orders and trades.
The complete text of the rule amendments in relation to market making is available for reference on Bursa Malaysia's website at www.bursamalaysia.com.
