KUALA LUMPUR: Licensed onshore banks are now allowed to trade in foreign currencies against another foreign currency with a resident effective Tuesday, Bank Negara Malaysia announced Monday.
The central bank also announced that beginning Tuesday, licensed onshore banks are permitted to offer ringgit-denominated interest rate derivatives to a non-bank non-resident.
Flexibility is also given for a resident to convert their existing ringgit or foreign currency debt obligation into a debt obligation of another foreign currency, it said in a statement.
All these measures are part of continuous efforts by Bank Negara to enhance competitiveness in the economy and to develop the domestic financial market.
The measures in line with the road thrust of the Financial Sector Blueprint will contribute towards increasing liquidity, depth and participation of wider range of players in the domestic financial market. With this liberalisation, a resident is allowed to buy and sell foreign currency against another foreign currency for any purpose including trading.
However, such transaction will only be undertaken with a licensed onshore bank, it said.
Licensed onshore banks are licensed commercial banks, licensed Islamic banks and licensed investment banks in Malaysia.
Bank Negara said licensed money changers and approved remittance service operators are only allowed to buy and sell foreign currencies with residents and non-residents on cash basis.
It said the liberalisation did not include foreign currency trading against the ringgit.
A resident individual can also trade in a foreign currency against another foreign currency, it said. However, a licensed onshore bank, in offering the product to any resident, including an individual, is required to ensure the resident meets the suitability assessment as specified under the Bank Negara-issued guidelines.
The central bank also said residents may buy or sell a foreign currency against another foreign currency on both spot and forward basis and can fund trading from their own existing foreign currency funds in any amount.
They can also fund their trading from the ringgit conversion on spot basis (subjected to prevailing rules on investment in foreign currency assets) or permitted foreign currency credit facilities, it explained.
Bank Negara said a ringgit-denominated interest rate derivative includes interest rate futures, options and swaps.
It said the conversion through swap of a ringgit or a foreign currency debt obligation into another foreign currency debt obligation will be considered as a foreign credit facility and will be subjected to prevailing rules on foreign currency credit facilities obtained by a resident.
The conversion through swap of an existing ringgit debt obligation should not lead to actual delivery of a foreign currency at the inception of the transaction, it said.
Bank Negara said the conversion is also subjected to prevailing rules on foreign currency credit facilities obtained by a resident.
All conversions through a swap involving a ringgit debt obligation must be undertaken with a licensed onshore bank and shall be subjected to prevailing rules on foreign currency credit facilities, it added.-Bernama