The Malaysian central bank, Bank Negara Malaysia (BNM) has announced a series of securities financing initiatives for domestic buy- and sell-side institutions that it believes will enhance the efficiency of the Ringgit Bond Market.
They include the active use by the central bank of GC repo agreements as a tool to manage liquidity in the banking system. But the most significant measure is the introduction of a web-based custodian system -the so-called Institutional Securities Custodian Programme (ISCAP) – to facilitate lending of government securities by domestic institutional investors such as pension funds and insurance companies. The BNM expects borrowed Malaysian government securities to be used by domestic firms in repo transactions with it.
The central bank is also introducing a government securities lending facility for the ten existing principal dealers to facilitate their market-making activities, and so increase liquidity and the efficiency of pricing in the bond market. Securities for this lending facility will be sourced from ISCAP or from BNM’s own holdings of government debt.