Settlement process - Malaysia
Settlement cycles
| Bursa Malaysia-listed instruments: | T+2 Settlement Cycle |
| SSDS-eligible securities: | Negotiable, most commonly T+2 but same-day and other cycles possible. |
Settlement flow
1. Bursa Malaysia-listed instruments
Settlement against payment
Bursa Securities offers the following settlement models that provide for electronic settlement:
- Bursa Depository Transfer
Under the rules of the T+2 Settlement Cycle, sellers must deliver their securities by 11:30 Malaysian time, on T+2 via Bursa Depository Transfer mechanism and obtain payment, latest by 16:00 Malaysian time on T+2. - Institutional Settlement Service (ISS)
ISS is offered by Bursa Clearing (S) to facilitate settlement of institutional market trades so that settlement between trading clearing members (for example, stock broking companies of Bursa Malaysia and its institutional clients) can be achieved through custodian banks that are non-trading clearing members (NTCM) on a DVP basis on settlement day.
Settlement flow - Bursa Depository Transfer
| T+0: | Order placing with the broker who executes the trade at the exchange. | |
| T+1 to T+2: | Settlement instruction is sent for pre-matching with the counterparty. | |
| T+2: | Settlement of delivery:
| |
| T+2: | Settlement of receipt:
| |
Settlement flow - ISS settlement
| T+0: | Order placing with the broker who executes the trade at the exchange. |
| T+1 to T+2: | Settlement instruction is sent for pre-matching with the counterparty. The instruction must indicate the requested settlement via ISS. The local broker initiates ISS settlement via ISS system from T+0 onwards. |
| T+2: | Custodian affirms or “final accepts” ISS settlement initiated by the local broker via the ISS system. Deadline for trades due for settlement on T+2 must be “final accepted” by 11:30 Malaysian time. Funding arrangements for receipts should be in place by 12:00 Malaysian time on T+2. |
| T+2: | Settlement. Shares are automatically debited and credited. A single net payment is made through the clearing house (Bursa Clearing (S)). |
Settlement risks
- Bursa Depository Transfer
Details of transfers are updated on an immediate basis: securities are available in the recipient’s account with same-day value and the payments are received later in the day for delivery trades. - ISS settlement
ISS settlement eliminates the settlement risk of the Bursa Depository Transfer method by exchanging securities and cash on T+2. In addition, cash settlement is done with the clearing house Bursa Clearing (S), eliminating the risk of a broker default.
Partial settlement in ISS
A trade can be successfully confirmed via ISS on T+2, even if there are insufficient shares on the delivering account. However, this may lead to automatic partial settlement.
Securities transfers (free of payment)
CSD account holders can transfer securities to other accounts subject to one of the following categories of approval reason at Bursa Depository:
- Category A: NCBO - no change of beneficial owner
Prior approval from Bursa Depository is not required to execute the transfer. - Category B: CBO - change in beneficial owner.
If the transfer is related to a take-over offer, a transfer between family members, a transfer involving government authorities, or if it is related to securities pledged or charged, then prior approval from Bursa Depository is not required. However, relevant documents in support of the transfer will be required.
If the transfer involves a change of beneficial owner but does not relate to the circumstances mentioned above, prior written approval is required from Bursa Depository before the transfer.
Central Matching Facility (CMF)
CMF facilitates the matching of trades and settlement details for institutional trades between local custodian banks (Non trading Clearing Participants - NTCP) and local brokers (Trading Clearing Participants - TCP) of Bursa Clearing.
Once a trade is matched in CMF:
- Settlement via the Institutional Settlement Service (ISS)
CMF automatically updates the ISS system with the specific trade details for settlement. Additional update of the trade in the ISS after pre-matching is not necessary. - Settlement via the Depository Transfer
CMF only provides matched/unmatched file to the CMF participant. Trade details must be input manually by the CMF participant into the central depository system to effect transfer of securities.
Note: CMF is currently not mandatory for trades settled via Depository Transfer.
2. SSDS-eligible securities not listed on the exchange
SSDS uses an electronic book-entry system for recording and settlement. Transactions are completed either in two cycles or, in the case of in-house deals or transfers, in one cycle. The seller initiates the confirmation process in all cases involving two parties.
Note: Effective 21 May 2018, BNM requires resident and non-resident investors to settle SSDS-eligible securities via segregated securities accounts (SSAs), opened in the Real-Time Electronic Transfer of Funds and Securities (RENTAS) system, per ultimate beneficial owner (UBO). A Legal Entity Identifier (LEI) is required for the SSA opening.
The transaction flow is as follows:
| Cycle 1: | 1. | Agreement on the trade. | |||
| 2. | The seller sends the appropriate trade details through his own member computer to the BNM central computer. | ||||
| 3. | The central computer validates and stores the data and acknowledges the receipt to the seller. | ||||
| 4. | The central computer transmits an unconfirmed sale advice to the buyer’s member computer, where it can be printed. | ||||
| Cycle 2: | 1. | On receipt of the unconfirmed sale advice, the buyer checks the details and accepts or rejects the advice, as appropriate.
When confirmed by the buyer, the deal becomes a matched transaction. | |||
| 2. | Upon receipt of the confirmation advice:
| ||||
| 3. | The BNM central computer then transmits a Confirmation Advice of the deal to the seller’s member computer and the deal is completed in all respects. | ||||
Clearing Guarantee Fund (CGF)
The CGF provides guaranteed support for settlement of trades when there is a payment or delivery default by local stockbrokers.
The fund, consisting of a pool of assets such as cash, bank guarantees and other financial resources, enables the Clearing House to deal with potentially large credit and/or liquidity risks that may arise when a local stockbroker defaults on its payment or delivery obligation on any settlement day.
The purpose of the CGF is to deal with the liquidity risk resulting from a broker's default. The CGF is not a compensation fund.
Capital Market Compensation Fund (CMCF)
The compensation funds established by Bursa Malaysia, namely the Bursa Securities Compensation Fund, is no longer in existence. Though if there are claims made prior to 28 December 2012, it will still be considered.
This fund has been consolidated into the CMCF. The CMCF provides an avenue for individual investors to make a claim in the event that a participating organisation with a Capital Markets Service Licence (CMSL) fails to pay amounts owed to its investors. The individual investor must be a client of a participating organisation.
An event of default is where the CMSL holder is unable, or is likely to be unable, to meet financial claims arising out of fraud, defalcation or misselling which leads to insolvency.
Bursa Depository Compensation Fund
Bursa Depository has its own compensation fund to meet claims from investors who suffer losses arising out of its own staff's infidelity, professional negligence and computer crimes which is limited to MYR 100,000 per claim. All authorised depository agents and authorised direct members are required to have sufficient insurance covers and indemnify Bursa Depository against any losses as a result of negligence at their end.
This compensation fund is separate from the compensation fund operated by Bursa Malaysia.
Malaysia Deposit Insurance Corporation (MDIC)
The MDIC provides deposit insurance. This system is established by the government to protect depositors against the loss of insured deposits placed with member institutions, in the unlikely event that a member institution is unable to meet its financial obligation to depositors. MDIC insures eligible deposits of up to MYR 250,000 coverage limit per depositor per member institution.
Cash settlement
Overdraft facilities
Limited overdraft facilities are available. Onshore licensed banks are allowed to grant overnight or intraday overdraft facilities to non-resident stockbroking companies and global custodian banks, under the following conditions:
- The credit facility is strictly for financing funding gaps due to unforeseen inadvertent technical or administrative errors or time zone delays in relation to settlement of MYR instruments through the Real-Time Electronic Transfer of Funds and Securities (RENTAS) for SSDS-eligible securities and listed securities on Bursa Malaysia.
- The overnight limit extended per transaction must be repaid within two business days with no roll-over option.
Payment system
The clean payment system is RENTAS system.
Transfers in RENTAS are settled on an immediate, continuous and gross basis. The system eliminates settlement risk by effecting transfers only when the remitter has sufficient funds on account.
Note: Confirmed incoming funds not yet in the remitter’s account are not sufficient to allow payment.
A payment order already settled cannot be cancelled and the remitter must liaise with the counterparty to retrieve the funds.
Malaysian residents
Foreign agents cannot hold cash balances for Malaysian residents. Funds are only allowed to be passed through. That is, any MYR credited into a foreign agent’s account by Malaysian residents has to be transferred out to their own local cash accounts within three days of the credit date. A person residing in Malaysia is considered to be resident even if they have a foreign citizenship.
Approved reasons for external fund transfers
Transfers of funds from external accounts (foreign account holders) can be affected for one of the following reasons only:
- Purchase of MYR asset or placement of fixed deposit;
- Defrayal of administrative and statutory expenses in Malaysia;
- Payment of goods and services in Malaysia;
- Loan and advance to staff in Malaysia pursuant the terms and conditions of the service;
- Transfer of funds between the same account holder;
- Transfer of funds between different account holders if related to purchase or sale of MYR assets.
Credit interest
Current regulations do not prohibit the payment of credit interest on MYR cash accounts. However, in line with market practice, most banks in Malaysia do not pay credit interest on MYR current accounts as this is due to the accounts being basic cash accounts to facilitate trade settlement.
Foreign exchange controls
Non-residents are allowed to engage in spot transactions, forward foreign exchange contracts and currency swap arrangements. However, all such transactions must be backed by firm commitments in the local market.
Note: As per BNM’s requirement, non-resident banks and non-resident securities companies intending to transact in onshore foreign exchange transactions involving MYR must first attest that they shall not or shall cease to conduct or transact in any offshore MYR non-deliverable forwards and/or offshore MYR foreign exchange derivatives contracts, as well as any further product or financial instruments of similar substance.
Forward foreign exchange contracts
Non-residents can enter into forward foreign exchange contracts to buy or sell foreign currency against MYR to hedge committed payments or receipts for the following:
- Current account transactions; or
- Capital account transactions other than the following:
- Existing funds in External Accounts (EA), including fixed deposits;
- Negotiable instruments of deposits in MYR.
Currency swap arrangements
A swap is not allowed for funds already existing in the country but non-residents can enter into currency swap arrangements that inject new funds into the market.
That is, when a non-resident enters into a foreign exchange contract to buy Ringgit, a swap is allowed only if there is at the same time a foreign exchange contract to immediately sell Ringgit.
There is no restriction on the maturity date of a swap arrangement.
Note: All foreign exchange contracts must be on the back of a firm MYR commitment in the Malaysian market. Supporting documents may be required to substantiate such deals.
Registration
Bursa Malaysia-listed instruments
Positions held in Bursa Depository are represented by consolidated physical certificates, with no commercial value, immobilised at Bursa Depository. The certificates are registered in the name of the Bursa Malaysia Depository Nominees Sdn Berhad as a bare trustee and are held to the order of the Bursa Depository member.
Securities deposited in Bursa Depository may be held in omnibus accounts opened according to the following structure:
| Account Name: | <Name of AN> (AN=Authorised Nominee: the Authorised Depository Agent ADA or Authorised Depository Member ADM; that is, the Malaysian sub-custodian. |
| Account Qualifier: | <EXEMPT AN> for <AN’s client name> (optional additional reference - useful for those clients of the Malaysian sub-custodian who prefer to operate multiple omnibus accounts in order to group diverse holdings separately). |
Omnibus account holders are obliged to provide beneficial owner details as and when requested by Bursa Depository or by Malaysian regulators.
Investors or their intermediaries may opt to hold positions in segregated Bursa Depository accounts. Such accounts are typically structured as follows:
| Account Name: | <Name of AN> |
| Account Qualifier: | <AN’s client name or abbreviation> for <beneficial owner’s name (optional additional reference)> |
All physical withdrawals of securities from the Bursa Depository are prohibited, except in cases allowed in the notices issued by the Bursa Depository (for example, to facilitate share buy back, the conversion of debt securities, the process of company restructuring, correction of errors, or the withdrawal of delisted securities).
SSDS-eligible securities - unlisted instruments
Debt securities held in RENTAS are within a sub-system called Scripless Securities Depository System (SSDS). These securities are dematerialised with BNM as the depository and re-registration is not applicable. SSDS is operated by Payments Network Malaysia (PayNet), which is jointly owned by the central bank, BNM and 11 Malaysian financial institutions.
Securities deposited in RENTAS are held in SSAs opened according to the name of the UBO as per registered LEI. SSAs opened at fund manager level, bond fund level or trustee level are subject to quarterly reporting of underlying clients. Reporting is not required for mutual funds. It is also not required that SSAs are segregated and registered under trustee level for specific funds, corporations or individuals.
Dormant accounts
Bursa Depository designates an investor’s account as dormant when there have been no activities and no holdings in it over the past 36 months. Trade settlements are not allowed on a dormant account until it is reactivated. Settlement of trades instructed across a dormant account may be delayed.
To reactivate a dormant account, the account holder must apply to the Bursa Depository and pay a reactivation fee of MYR 5.00 (per account).
Note: Bursa Depository will auto-close the dormant Central Depository System (CDS) accounts which reach the fourth-year threshold after being designated as dormant unless reactivated.
Inactive accounts
Bursa Depository designates an investor’s account as inactive when there are balances on the account but there have been no movements across it in the past 36 months.
The restrictions on an inactive account are as follows:
- The withdrawal of securities arising from sales is not allowed.
- Purchases or transfers of securities on the basis of no change of beneficial owner are not allowed, except when crediting securities resulting from corporate actions.
Attempts at settlement of trades instructed across an inactive account may result in a buy-in.
To reactivate an inactive account, the account holder must apply to the Bursa Depository. No reactivation fee is charged.
Buy-ins and sell-outs
Bursa Malaysia-listed instruments
There are two sessions for buy-ins, as shown below. Automated buy-in is imposed on T+2 from 14:00 to 17:00 Malaysian time. In the event the buy-in is unsuccessful on T+2, the outstanding contract will be cash settled on T+3.
The buy-in period for board lot failed trade is on T+2 from 14:00 to 17:00 Malaysian time. Failed trades will be cash settled on T+3.
| T+2 Settlement Cycle | |
| Buy-in |
|
| Board Lot Failed Trade | Automatic buy-in on T+2: From 14:00 to 17:00 Malaysian time |
| Odd Lot Failed Trade | No buy-in |
1. Automatic Buy-in
- On-market transaction
All failed on-market transactions from the overnight batch processing run will not be subjected to buy-in the morning session on T+2. Any failed on-market transaction from the 2nd processing run will be subjected to the buy-in in the afternoon session on T+2.
The buy-in price is based on current trading procedures.
Automatic buy-in is available from 14:00 to 17:00 Malaysian time on T+2. Any unsettled automatic buy-in after 17:00 Malaysian time on T+2 will be withdrawn from the system for cash settlement. Trading clearing participants are to ensure that there is no further onward selling as the contract will be cash settled in lieu of delivery of securities.
The odd lot portion of a trade is not subject to buy-in. - Direct business transaction
There is no automatic buy-in on direct business transactions.
2. Manual Buy-in
There are two cut-off times for manual buy-in as in the T+2 settlement cycle environment. Below are the submission cut-off times and requirements:
| Buy-in Market Timing | 1st Session Buy-in: From 08:30 to 12:30 Malaysian time | 2nd Session Buy-in: From 14:00 to 17:00 Malaysian time |
| Submission of Manual Buy-in Request Form cut-off time | Manual Buy-in Request Form must reach Trading Operations by 17:00 Malaysian time one day earlier before the manual buy-in. | Manual Buy-in Request Form must reach Trading Operations by 11:45 Malaysian time to enable the securities to be reflected on the Buy-in Board on the same day at 14:00 Malaysian time. Note: Brokers are to email indicative counters / securities subject to potential buy-in to the Clearing House by 19:30 Malaysian time, one day earlier before the manual buy-in. |
Cash settlement for on-market transaction
The cash settlement for Board and Odd Lot for T+2 settlement cycle is as below:
| T+2 Settlement Cycle | |
| Board Lot Failed Trade | Cash settlement from T+3 onwards |
| Odd Lot Failed Trade | Cash settlement on T+2 |
1. Odd lot
Under the T+2 settlement cycle, the failed Odd Lots contract will be settled by cash on T+2.
2. Board Lot
Under the T+2 settlement cycle, the failed Board Lots contract will be bought in on T+2 from 14:00 to 17:00 Malaysian time, failing which it will be withdrawn and cash settled on T+3 in accordance to the Clearing House Rules.
The odd lot portion of a trade is not subject to buy-in.
SSDS-eligible securities
If delivery of the securities is not made within one business day following value date, the buyer has the right to execute a buy-in. The buyer advises the seller of the buy-in price via telephone and sends a confirmation in writing.
However, buy-ins are usually not initiated.
Common practice is for counterparties to settle the difference through a claim process or to enter into a new contract. The buyer is entitled to claim compensation from the seller for the money difference. The central bank facilitates the calculation of the compensation but this may nevertheless be dictated by the parties involved in the contract.