Published October 7, 2009

M'sian exchange plans bond trading platform

Bourse aims to spur retail interest in debt market, Islamic paper included

	Email this article
	Print article
	Feedback

(KUALA LUMPUR) Malaysia's stock exchange operator said yesterday it plans to launch a secondary trading platform for bonds, including Islamic paper, to spur retail interest in its debt market.

Malaysia's bond market is dominated by the state pension fund and insurers and Islamic bonds in particular are rarely traded, with limited supply prompting investors to hold their paper until maturity.

Malaysia has the third- largest bond market in Asia ex-Japan after China and Korea, and traders estimate daily trading volumes average about RM2.35 billion (S$958 million).

Bursa Malaysia's secondary bond trading platform would boost transparency and meet demand from retail investors, said the bourse's global head of Islamic capital markets, Raja Teh Maimunah Raja Abdul Aziz.

'The only way to bring retailers on would be through the exchange,' she said. 'The over-the-counter market is not transparent in terms of pricing so you cannot get the retailers to come on. We have to have a bear and bull model. Fixed income is a defensive investment.' She said retail investors now invest in bonds through unit trust funds but some players want direct access to the market, which would allow them to make their own investment selections.

The bourse is doing research and development on the platform, she said, but did not give a target date for its rollout.

Lum Choong Kuan, head of fixed income research at Malaysia's No 2 bank CIMB, said a trading platform could tackle the problem of illiquidity.

'If there's more liquidity, you will see people issuing more Islamic bonds and the buy-and-hold mentality may not be a hindrance to market liquidity,' he said.

Globally, the secondary Islamic bond market has seen thin trading volumes, due partly to theological differences on the extent to which Islam allows the sale of debt.

The Hanafi school of thought does not allow debt to be sold to third parties, but some schools sanction it under certain conditions, including that the price must be paid on the spot and that the sale must not lead to interest.

Saudi Arabia launched a secondary trading platform for conventional and Islamic bonds in June, the Gulf's third, but volumes have been meagre without a sovereign bond as a price benchmark. -- Reuters