Payment and Clearing System
Payment and Clearing System
Payment and Clearing System
Malaysia
Malaysia
Contents
List of abbreviations ................................................................................................................................... 5
Introduction................................................................................................................................................. 6
1. Institutional aspects .............................................................................................................................. 7
1.1. The general institution framework ....................................................................................................... 7
1.1.1. The legal and regulatory framework ................................................................................................. 7
1.2. The role of BNM .................................................................................................................................. 8
1.2.1. General responsibilities ..................................................................................................................... 8
1.2.2. Role in payment system .................................................................................................................... 8
1.2.3. Cooperative oversight with other institutions ................................................................................... 9
1.3. The role of private and public sector bodies ...................................................................................... 10
1.3.1. Payment services providers ............................................................................................................. 10
1.3.2. Malaysian Electronic Clearing Corporation Sdn. Bhd. (MyClear) ................................................. 11
1.3.3. Malaysian Electronic Payment System Sdn. Bhd. (MEPS) ............................................................ 11
1.3.4. Securities Commission (SC) ........................................................................................................... 11
1.3.5. Association of Banks in Malaysia (ABM) ...................................................................................... 11
1.3.6. Credit Counselling and Debt Management Agency (AKPK) ......................................................... 11
1.3.7. Financial Mediation Bureau (FMB) ................................................................................................ 12
2. Payment media .................................................................................................................................... 13
2.1. Cash payments .................................................................................................................................... 13
2.2. Non-cash payments ............................................................................................................................ 13
2.2.1. Payment instrument ......................................................................................................................... 13
2.2.2. Payment channels ............................................................................................................................ 15
2.2.3. Payment systems ............................................................................................................................. 16
2.3. Recent developments .......................................................................................................................... 17
2.3.1. Mobile banking and payments ecosystem ....................................................................................... 17
2.3.2. Acquisition of MEPS retail payment systems by MyClear ........................................................... 17
3. Payment and settlement system ......................................................................................................... 18
3.1. Large-value payments system ............................................................................................................ 18
3.1.1. Real-time gross settlement system - RENTAS system ................................................................... 18
3.2. Retail payment systems ...................................................................................................................... 22
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3.2.1. Cheque Clearing System - eSPICK ................................................................................................. 22
3.2.2. Interbank GIRO (IBG) .................................................................................................................... 24
3.2.3. Financial Process Exchange (FPX) ................................................................................................. 24
3.2.4. Direct Debit ..................................................................................................................................... 24
3.2.5. Shared ATM Network (SAN) ......................................................................................................... 24
4. Systems for post-trade processing, clearing and securities settlement .......................................... 26
4.1. General overview ............................................................................................................................... 26
4.2. Post-trade processing systems ............................................................................................................ 26
4.2.1. Institutional framework ................................................................................................................... 26
4.2.2. Participation..................................................................................................................................... 26
4.2.3. Types of transactions ....................................................................................................................... 27
4.2.4. Operation of the system ................................................................................................................... 27
4.2.5. Risk management ............................................................................................................................ 27
4.2.6. Pricing ............................................................................................................................................. 28
4.3. Central counterparties and clearing systems ...................................................................................... 28
4.3.1. Bursa Malaysia Securities Clearing Sdn. Bhd. [Bursa Clearing (S)] .............................................. 28
4.3.2. Bursa Malaysia Derivatives Clearing Sdn. Bhd. [Bursa Clearing (D)] ........................................... 28
4.4. Securities Settlement Systems ............................................................................................................ 30
4.4.1. Scripless Securities Depository System (SSDS) ............................................................................. 30
4.4.2. Equities ............................................................................................................................................ 32
4.5. Use of the securities infrastructure by the central bank ..................................................................... 33
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List of abbreviations
ABM
AKPK
BNM
Bursa Clearing (D)
Bursa Clearing (S)
Bursa Depository
Bursa Malaysia
Bursa Securities
CDS
CHS
CSD
DCS
DvP
eSPICK
FAST
FMB
FPX
HKMA
IBG
ICSD
IFTS
MyClear
PKI
PvP
RENTAS
SAN
SC
SSDS
Malaysia
Introduction
The payment and settlement systems in Malaysia have evolved significantly over the years, consistent
with the needs of the economy. Driven by advances in information and communication technologies,
the range of payment products and services in the market expanded in response to diverse market
demands. Access to payment systems has broadened, offering greater efficiency and convenience to
consumers and businesses.
While cash and cheques are still widely used in Malaysia, electronic payments (e-payments),
particularly via the Internet banking channel have continued to increase in popularity. Bank Negara
Malaysia (BNM) strongly advocates the migration to e-payments to improve the overall efficiency of
the payment system and provide meaningful cost savings and efficiency to the entire economy. This
aspiration is incorporated in the new Financial Sector Blueprint, which sets out the strategies and action
plans to transform the Malaysian payment system into one that is highly efficient through more
intensive use of e-payments.
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1. Institutional aspects
1.1. The general institution framework
1.1.1. The legal and regulatory framework
Payment and settlement systems in Malaysia are governed by several sets of legislations. The principal
legislations are briefly described below:
The Payment Systems Act 2003 (PSA), which came into force on 1 November 2003, outlines the
oversight regime for operators of payment systems and issuers of designated payment instruments1.
The Act empowers BNM to designate:
a payment system as a designated payment system if such a system poses systemic risk or if the
designation is necessary to protect the interest of the public; and
a payment instrument as a designated payment instrument if the instrument is widely used to make
payments or it is necessary to protect the interest of the public or to maintain the integrity,
efficiency and reliability of a payment instrument.
Both operators of designated payment systems and issuers of designated payment instruments are
required to implement adequate corporate governance and operational arrangements that ensure the
safety and reliability of the systems and instruments.
The Act also contains provisions on the finality and irrevocability of transactions sent through a
designated payment system and netting arrangements in designated payment systems that are
enforceable and binding on the participants. It is important that transactions sent through a designated
payment system are protected from the potential application of the zero-hour rule. This rule might
result in payments made by a failed institution (being declared invalid) between midnight and the time
of a winding-up order by a court. The zero-hour rule, if not mitigated would create serious liquidity
problems and pose systemic risk to the payment system. The Act provides that netting arrangements
adopted by participants of a designated payment system and finality of payment and settlement
instructions in a designated payment system prevail over insolvency laws.
The Bills of Exchange Act 1949 (BEA) together with the Contracts Act 1950, lay down the legal
framework for the use of cheques and other bills of exchange. The BEA was amended in 2007 to pave
the way for the implementation of a cheque truncation system. A cheque is duly presented for payment
if the image and the electronic payment information of the cheque are presented through an electronic
means. The Act also empowers the Minister to make regulations in respect of any matters relating to
cheque truncation.
In addition to the legislations mentioned above, guidelines were issued to promote the safety and
soundness of the payment and settlement systems. These guidelines are as follows:
Three payment instruments have been designated as designated payment instruments, namely electronic money, credit
card and charge card
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Guidelines on Minimum Security Standards for Cheques issued in 2004 which specify the requirements
relating to the security features of cheques, governance arrangements, fraud detection facilities and
security management in cheque printing.
Guidelines on E-money issued in 2008 outline the broad principles and minimum requirements to be
observed by all e-money issuers. The Guidelines, amongst others, impose a purse limit of up to
RM1,500 for large e-money schemes and up to RM200 for small e-money schemes. Issuers of large
schemes are required to maintain minimum shareholders funds of RM5 million. Issuers of both large
and small schemes are required to establish adequate governance and operational arrangements to
ensure the integrity of e-money schemes and open a trust account to deposit the funds collected in
exchange for the e-money issued. The e-money regulatory framework is currently being reviewed.
Guidelines on the Provision of Electronic Banking Services by Financial Institutions issued in 2010
outline the broad principles and minimum requirements to be observed and adopted by financial
institutions in offering any form of electronic banking services. Amongst others, the guidelines require
financial institutions to adopt multi-factor authentication in ensuring the safety of online access to
account information and transaction functionality.
Credit Card Guidelines issued in April 2011 outline measures that credit card issuers and acquirers
should adopt to mitigate risks in credit card operations and combat credit card fraud. One of the
measures is to consider implementing personal identification number (PIN) technology to complement
the Europay-MasterCard-Visa (EMV) Chip infrastructure.
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payment systems and safeguarding public interest. Banking institutions, non-bank players operating
payment systems and issuing payment instruments are governed by the PSA.
BNM is empowered to prohibit the operation of any payment system if it is against public interest, or
the operation of such system is detrimental to the reliable, safe, efficient and smooth operation of the
countrys payment systems. Its oversight activities are directed towards ensuring the reliability of major
payment and settlement systems and mitigating of possible risks within the systems. These activities
include collection of payment system information, both on-site and off-site surveillance and validation
of self-assessments by operators of systemically important payment systems against internationally
accepted Core Principles for Systematically Important Payment Systems (CPSIPS) set by the Bank for
International Settlements (BIS).
1.2.2.2. Operator role and provision of settlement services
BNM owns the Real-time Electronic Transfer of Funds and Securities (RENTAS) System, Malaysias
large value payment system, which provides settlement of payment obligations among banks and other
approved institutions on a real-time gross settlement basis. Settlement accounts are maintained at BNM.
In line with international best practices and the BIS recommendations in Core Principle X, which
outlines that payment systems governance arrangements should be effective, accountable and
transparent, BNM reviewed its organisational structure for the operations and oversight of the
RENTAS system. Following the review, Malaysian Electronic Clearing Corporation Sdn. Bhd.
(MyClear), a wholly-owned subsidiary of BNM, was established to operate RENTAS and the National
Electronic Cheque Information Clearing System (eSPICK) and to implement initiatives that would
accelerate the migration to e-payments. The operators role previously undertaken by BNM was
transferred to MyClear in January 2009.
1.2.2.3. Developmental/Facilitator role
BNM also plays an important role in the development of the payment system. BNM actively
participates in initiatives to improve the payment infrastructure in particular, initiatives to accelerate the
country's migration to e-payments. BNM also works closely with the payment industry and various
stakeholder groups to increase the adoption of e-payments in various economic sectors.
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of information exchange between BNM and the HKMA whereby both agencies established points of
contact and procedures for the oversight activities. The cooperative arrangement also includes business
continuity plans for the PvP and Delivery versus Payment (DvP) links.
Table 1
Number of banking institutions and banking channels as at end-2010
Banking institutions
Commercial Banks
Islamic Banks2
Domestic
Foreign
Domestic
Foreign
Banking channels
Branches
Automated Teller Machine (ATM)
Cash and cheque deposit machines (CDM)
No. of institution
9
14
11
6
No. of units
4,108
9,436
7,026
Islamic bank refers to a company which is licensed under the Islamic Banking Act 1983 to carry on Islamic banking
business. Islamic banking business means banking business, the operations of which do not involve any element which is
not approved by the Religion of Islam. The main principles of Islamic banking are the prohibition of interest (usury) in all
transactions, the undertaking of business and trade activities must be on the basis of fair and legitimate profit and the
prohibition of monopoly and hoarding. By doing so, Islamic banks will safeguard the Islamic communities and societies
from activities that are forbidden in Islam.
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consumers, including Internet banking, online bill payments, credit and debit cards, phone banking and
ATM services. DFIs have 1,444 ATMs and 288 CDMs nationwide.
1.3.1.3. Other non-banking Institutions
These institutions are issuers of e-money, charge and credit cards and operators of payment systems
such as international money transfer, card network, payment gateway and third party acquirer. As at
end-2010, there were 60 non-bank institutions, which are mainly e-money issuers and payment system
operators.
Pos Malaysia Berhad (PMB), the exclusive postal services provider in Malaysia also offer payment and
fund transfer services such as remittances and payment for utilities, assessment and road tax. The
services offered by PMB, other than remittance, are not under the purview of BNM.
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AKPK, which was established in April 2006, provides free credit counselling, debt management
services and financial education to educate and assist individuals to take control of their financial
responsibilities. The Agency intends to create a financially sound household sector by making available
practical financial advice to individuals and potential borrowers. AKPK also facilitates debt
restructuring and helping individuals to manage their financial obligations and consequently helps
minimising incidents of non-performing loans within the banking industry. Services offered include
identifying financial options available for individuals, tailoring financial solution, providing education
on the proper use of credit, money management skills and tips on credit responsibility and debt
management. Currently, AKPK operates in 10 states in the country.
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2. Payment media
2.1. Cash payments
Cash remains a significant payment method in the economy, particularly for small-value payments.
This is substantiated by the increasing trend of cash in circulation (CIC) per capita from RM1,249.30 in
2006 to RM1,687.90 in 2010 and the increase in CIC-to-GDP from 5.8% to 6.2% over the same period.
Nonetheless, the average value of cash withdrawals at the ATM, which is one of the proxies used to
indicate the role of cash, remained relatively constant in the range of RM460 to RM470 in the past five
years.
Cards that do not require customers signature and need not be swiped or inserted into the card reader. As a security
measure, a limit is placed on the purchase transactions using these cards.
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Credit card finance charges are capped at 18% per annum and a tiered-pricing structure is adopted to
promote prudent financial management and inculcate good financial discipline among credit
cardholders. Cardholders with good repayment discipline enjoy lower finance charge rates capped at
15% for Tier-1 and 17% for Tier-2.4 There is an annual Government service tax of RM50 and RM25
for principal and supplementary cards, respectively.
2.2.1.3. Charge cards
Charge cards are not so popular in Malaysia with only 5 million transactions amounting to RM5.2
billion recorded in 2010. There are seven charge cards issuers under the Visa, MasterCard, American
Express and Diners Club brands with only about 181,000 charge cards in circulation and 125,946
merchants accepting charge card payments at about 180,600 POS terminals nationwide. Most of the
charge cards issued in Malaysia are in compliance with the EMV chip card standard. In view that
charge cards are often associated with prestige, the fees are generally higher than credit cards. This is
compensated by the differences in terms of benefits, with charge cards generally offering more
privileges. The service or late payment charges imposed by the conventional charge card issuers range
between 36% to 42% per annum. Charge cards are also subject to the annual Government service tax.
2.2.1.4. Debit cards
There are two types of debit cards in Malaysia, i.e. the PIN-based domestic debit card known as eDebit and signature-based debit card under the international brands (scheme debit card). The e-Debit
card is the ATM card issued by the domestic banks and development financial institutions. The use of
e-Debit card at terminals deployed by different acquirers has been facilitated by MEPS since 2002. As
at end-2010, there were 26.3 million cards in circulation with the e-Debit functionality, which are
accepted by 86,590 merchants nationwide. Malaysian banking institutions started to issue the
MasterCard and Visa debit card in 2003. As at end-2010, there were 9.5 million scheme debit cards in
circulation, of which, 5.4 million were combo cards, i.e. cards with both e-Debit and scheme debit
applications.
Some banks have introduced cash out facility, which allows cardholders to obtain cash at
participating merchants when making purchases using debit cards. The facility introduced in 2007
offers convenience to consumers, as they do not have to withdraw cash at the bank branches or ATMs.
Merchants could also benefit from the reduced cash handling and its related cost.
While the amount paid using debit cards is small relative to other payment cards, it is fast gaining
popularity especially in the retail sector and for fuel purchases. There were 18.4 million debit card
transactions amounting to RM4.7 billion recorded in 2010 as compared to 4.2 million transactions
valued at RM650 million in 2006.
Under tiered pricing structure, cardholders are categorized under three tiers:
Tier 1 settle amount due promptly for 12 consecutive months;
Tier 2 settle amount due promptly for 10 months in a 12 months cycle; and
Tier 3 others.
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2.2.1.5. E-money
E-money can be card-based or network-based. There are two card-based schemes that are available in
Malaysia; the MEPS Cash and Touch n Go. MEPS Cash can be used for making payments in the retail
sector while the latter can be used for toll payments, transit fare and parking charges apart from retail
purchases. The bulk of the e-money transactions are mainly payments in the transportation sector.
Network-based schemes in Malaysia are accessible via the Internet or mobile phones. These schemes
are mainly issued by non-banking institutions and used for purchases of digital contents (e.g. online
games), remittances and online purchases of products and services.
E-money accounted for more than 50% of the total volume of non-cash retail payment transactions or
699.3 million transactions amounting to RM2.7 billion as at end-2010. However, as e-money
transactions are basically small in value, it accounted for only 6.4% of the total amount of card
payments in 2010.
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2.2.2.3. Automated Teller Machine (ATM)
Apart from cash withdrawals, ATMs are also used for payments and funds transfer transactions.
Currently, the services offered include bill payments, electronic share application, reloading of mobile
prepaid airtime and e-money, credit card and loan repayment, individual income tax payment and
purchases of air tickets. In 2010, 38.8 million ATM transactions were made valued at RM31.3 billion.
The use of ATM for payment and funds transfer transactions is still negligible as it only represents
about 7% of the total number of ATM transactions in 2010.
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HOUSe
HOUSe which is owned by HSBC, OCBC, UOB and Standard Chartered Bank, facilitates interbank
cash withdrawals and balance enquiries among its member banks. In 2010, there were about 261,000
cash withdrawals valued at RM170.1 million.
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Financial Institutions (FIs) regulated by BNM and institutions under BNMs purview;
Investment banks co-regulated by BNM and the SC;
Central banks/monetary authorities and qualified foreign licensed institutions;
International Centralized Securities Depository (ICSD) and National Centralized Securities
Depository (CSD);
Qualified domestic entities that provide payment and clearing services (clearing houses); and
Qualified institutions whose admission will promote the development of the Malaysian
financial markets.
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Table 2
Breakdown of the RENTASs participants as at end-2010
Types of institution
BNM
Commercial Banks
Islamic Banks
Investment Banks
Development Financial Institutions
Others1
TOTAL
1
No. of participants
1
23
17
15
5
4
65
National Mortgage Corporation, Employees Provident Fund, Abrar Discount and MEPS
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3.1.1.4. Operation of the system and settlement procedures
The RENTAS daily operation hours are as follows:
Table 3
RENTAS daily operation hours
Scheduled Time
8.00 a.m.
8.30 a.m.
8.45 a.m.
11.00 a.m.
11.30 a.m.
3.30 p.m.
4.00 p.m.
4.30 p.m.
5.00 p.m.
5.30 p.m.
6.00 p.m.
Actions
RENTAS start time
Start time for PvP Link to USD CHATS
eSPICK normal clearing settlement
Cut-off time for all repayments of maturities, and forward value dated
transactions (including PvP / DvP settlement)
Settlement for SAN and e-Debit clearing
Cut-off time to send PvP payment instructions to participants bankers in
Hong Kong
Intraday credit cut-off warning
Cut-off time for paying participants to initiate third party transaction and
PvP transaction (MYR Leg)
Settlement for IBG, FPX and Direct Debit clearing
Intraday credit cut-off. No borrowing from collateral account
Cut-off warning for PvP Link to USD CHATS
Cut-off time for PvP Link to USD CHATS
Cut-off time for the repayment of intraday money market deal
RENTAS cut-off time
The RENTAS system, which has straight-through processing capability, processes, transfers and settles
interbank funds and scripless securities transactions simultaneously on real-time basis. All transactions
are processed and settled through a book-entry mechanism. As each interbank credit and debit transfer
is sent and received by member institutions, their account records in the Central Host System (CHS) for
interbank funds transfer will be credited or debited accordingly, depending on the availability of funds
in the payers account. The transfers are effected on a gross basis and are considered final and
irrevocable once effected.
3.1.1.5. Risks and risk management
Settlement risk
The RENTAS system is a real-time gross settlement system. While settlement risk is minimized via the
earlier finality provided by the continuous settlement throughout the operating hours of the system,
foreign exchange settlement risk had to be mitigated.
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In November 2006, BNM established a PvP link between the RENTAS system in Malaysia and USD
CHATS system in Hong Kong as an effort to mitigate foreign exchange settlement risk. As the USD
remained the most significant currency for foreign exchange settlement in the country, the risk of
disruption would be substantial if not properly mitigated. With the implementation of the link, the
settlement of MYR/USD trades is conducted on a PvP basis during Malaysian business hours (Hong
Kong shares the same time zone with Malaysia). The transfers are done simultaneously whereby the
MYR leg of a foreign exchange trade is settled through the RENTAS system in Malaysia while the
USD leg is settled simultaneously through the USD CHATS system in Hong Kong. Leveraging on the
existing PvP link, BNM introduced DvP in 2007 to mitigate the settlement risk of US dollar bonds
issued and traded in Malaysia by ensuring simultaneous delivery of US dollars in Hong Kong and US
dollar bonds in Malaysia.
Liquidity risk
To ensure that settlement is effected continuously on a timely basis by member participants, BNM
provides collateralised intraday credit facility to eligible members. The credit facility is extended
during the day without interest and settled by the borrowing institution before 6.00 p.m. This minimises
the incidence of payment gridlock, thus maintaining a smooth flow of payments within the RENTAS
system.
Operational risk
The RENTAS system is designed and operated to meet an appropriately high standard of availability
and resilience. Following the events of 11 September 2001, and a series of major incidents and
disruptions around the world (including terrorist attacks, natural disasters and power outages),
increased emphasis was placed on strengthening business continuity measures for RENTAS. Guided by
Core Principle VII of the CPSIPS on ensuring a high degree of security, operational reliability and
establishing contingency arrangements for timely completion of daily processing, high priority was
accorded on business continuity management to ensure the resilience and uninterrupted availability of
the critical payment systems. Appropriate business continuity plans that envisaged a variety of
scenarios, recovery and resumption objectives and procedures for effective crisis and communication
management were put in place. Regular reviews and testing, including live runs, both on an industrywide and stand-alone basis, were conducted to ensure the effectiveness of each and every aspect
contained in the business continuity plans. In addition, BNM introduced a second level back-up facility
to RENTAS members which may be activated in the event that both the production and disaster
recovery centre sites of the RENTAS members are down.
System reliability and security control
MyClear uses a private wide area network provided by a local network provider to connect its
RENTAS CHS with the Front-End Systems (FES) of its members. The RENTAS CHS server was
upgraded in 2004 and 2011 to support the increased volume of RENTAS transactions.
Various security measures have been put in place to ensure the security of the RENTAS system,
including point-to-point secure connection, the use of personal ID and password and digital signature
authentication. RENTAS has a hot backup where all transactions in the production environment are
mirrored to the backup site on a real-time basis. Hence, there will be no loss of transaction data should
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a disaster happen at the primary site. The RENTAS System Participation and Operation Rules were
amended in 2011 requiring members to ensure that RENTAS systems are operationalised within one
hour after activation of the disaster recovery procedures. Members are also required to conduct live
runs of off-site disaster recovery centre sites at least six times a year, of which two of these exercises
involve connecting to MyClears recovery site.
The Public Key Infrastructure (PKI) technology has been employed by BNM since 1999 to ensure the
confidentiality and non-repudiation of RENTAS transactions and to control access to the system. In
2008, BNM replaced the existing PKI technology with a new system where RENTAS members would
obtain digital certificates from the licensed public certification authorities in the country. The
implementation of the new security system contributes towards reducing new security threats and risks,
thereby effectively maintaining the confidentiality, data integrity, authenticity and non-repudiation of
daily RENTAS transactions.
3.1.1.6. Pricing policies
Participants of the RENTAS system are subjected to annual membership and transaction fees. Details
of the fees and charges imposed by MyClear are disclosed in the Operational Procedures for RENTAS.
BNM;
Institutions offering checking facilities, i.e. commercial banks and Islamic banks; and
DFIs and investment banks.
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Table 4
eSPICK members as at end-2010
Type of Institution
BNM
Commercial Banks
Islamic Banks
DFIs
Investment Banks
Total
Number of Participants
1
23
17
2
2
45
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nature of cheque clearing chosen by the customer. As for unpaid items, i.e. cheques returned due to
insufficient funds or any other reasons, they would be settled by 3.00 p.m. of the next business day.
3.2.1.6 Risks and risk management
In managing the operational risk that could cause a failure to the eSPICK system, MyClear set up a
hot standby mode recovery site with continuous transfer of image and data from the primary site. The
system disaster recovery arrangements are tested periodically. Their business continuity plan is
subjected to improvement from time to time.
3.2.1.7 Pricing policies
MyClear introduced different tiers of charges depending on the time the cheques image and
information are submitted by the banks. The charges ranged from RM0.02 to RM0.50 per cheque.
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by the respective issuer bank. The SAN only processes not-on-us 5 cash withdrawal transactions
whereby the acquirer bank will route these transactions to MEPS. Subsequently, these transactions
would then be rerouted to the issuer bank for authorization. The settlement report will be made
available to all participating banks by 9.00 a.m. on the next working day and banks have until 12.00
p.m. to settle the amount.
Cash withdrawal transaction where the ATM card (issuer bank) and the ATM owner (acquirer bank) are separate entities.
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Sdn. Bhd. (Bursa Clearing (S)) and Bursa Malaysia Derivatives Clearing Sdn. Bhd. (Bursa Clearing
(D)).
RENTAS is a real-time gross settlement system for inter-bank funds transfer, a securities (bonds)
settlement system and a scripless securities depository for all unlisted debt instruments. RENTAS is
owned by BNM and operated by MyClear.
Bursa Clearing (S) provides clearing and settlement services for the settlement of listed securities
(bonds and equities).
Bursa Clearing (D) provides clearing and settlement services for futures and options.
4.2.2. Participation
There are two categories of Clearing Participants namely Trading Clearing Participants (TCPs) and
Non-Trading Clearing Participants (NTCP). TCPs are the stockbroking companies, and also
Participating Organisations (POs) of the Exchange. NTCPs are Authorised Direct Members (ADMs) of
Bursa Depository that includes financial institutions and resident custodian banks. There are a total of
35 TCPs and 9 NTCPs as at end-2010.
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4.2.6. Pricing
The following are the clearing fees charged by Bursa Clearing (S): OMT 0.03% of contract value subject to a maximum of MYR1,000 per contract.
DBT 0.03% of contract value subject to a minimum of MYR10 and maximum of MYR1,000 per
contract.
4.3.2. Bursa Malaysia Derivatives Clearing Sdn. Bhd. [Bursa Clearing (D)]
4.3.2.1. Institutional framework
CMSA and the Securities Commission Act 1993 (SCA) govern clearing and settlement of
transactions in securities effected in Malaysia. The clearing and settlement system operator in
Malaysia for the derivatives market is governed by the rules of Bursa Clearing (D).
4.3.2.2. Participation
Bursa Clearing (D) rules lay down the financial and operational standards for clearing participants. All
Clearing Participants must maintain adequate back office system, staff and procedures that ensure
orderly and expeditious accounting of their dealings in derivatives. There are 21 Clearing Participants,
which consists of 19 General Clearing Participants (GCPs) and 2 Direct Clearing Participant (DCPs) as
at end-2010.
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For GCP:
Each GCP must lodge a Security Deposit of at least RM1 million in the form of cash and/or Approved
Collateral;
Each GCP must at all times maintain its Adjusted Net Capital at the higher of:
RM500,000; or
10% or such other percentage as may from time to time be determined by the Clearing House of the
total amount paid by the Clearing Participant to the Clearing House and any third party including
any other clearing house organisation in respect of margins (Rule 208A).
As with DCP, Rule 208B of the Bursa Clearing (D) states that each DCP must at all times: maintain Net Tangible Assets of not less than RM5 million, or a corporate guarantee of not less than
RM5 million; or
lodge Direct Clearing Participant Deposit of at least RM1 million in the form of cash and/or
Approved Collateral in accordance with Rules 206B
Additionally, both DCP and GCP are required to contribute RM1 million each to the clearing funds.
4.3.2.3. Types of transactions
The instruments covered include futures and options that are traded on Bursa Malaysia Derivatives Bhd.
4.3.2.4. Operation of the system
All open positions are settled-to-market at the end of the trading day. Any shortages of funds are
required to be paid to Bursa Clearing (D) before the next trading session begins on the following day.
Likewise, all mark-to-market gain will be credited into brokers account during the end-of-day
processing.
However, for certain futures i.e. Crude Palm Oil Futures (FCPO) and Crude Palm Kernel Oil Futures
(FPKO), when the client opts for physical settlement, the sellers will deliver the Negotiable Storage of
Receipt (NSR) which indicates the availability of FCPO or FPKO to Bursa Clearing (D). Upon receipt
of payment from the buyers, Bursa Clearing (D) will then release the NSR to the buyer.
For derivatives clearing, funds are settled on a net basis between the clearing house and its clearing
participants. Bursa Clearing (D) uses four clearing and settlement banks which are commercial banks
to diversify its risks. There is also a plan to establish a link with the RENTAS system for derivatives
settlement by 2013.
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Bursa Clearing (D) acts as a central counterparty for Bursa Malaysia Derivatives and operates a
guaranteed settlement system through a novation and netting process. To ensure robustness of the
system, several risk management measures were put in place:
Credit exposures of Clearing Participants (CPs) are collaterised with margin collateral;
Mark to Market (MTM) is performed at the end of every business day and settlement of any MTM
losses is due on the next business day before the market opens;
The clearing fund which serves as default fund, is stress-tested on a daily basis to ensure its adequacy
in the event of a failure by the participant with the single largest obligation;
CPs have to comply with Adjusted Net Capital requirements at all times; and
Chapter 10 of Bursa Clearing (D) rules prescribes the default actions by Clearing House in the event
of a CPs default. Subdivision 6 of Part II of the CMSA, particularly section 43 of the CMSA,
provides for the default action by Clearing House to take precedence over Law of Insolvency.
4.3.2.6. Pricing
Product
KLCI Futures (FKLI)
FCPO
3 Month Kuala Lumpur Interbank Offered Rate Interest
Rate Futures (FKB3)
3-Year Malaysian Government Securities Futures
(FMG3), 5-Year Malaysian Government Securities
Futures (FMG5) and 10-Year Malaysian Government
Securities Futures (FMGA)
0.50
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SSDS, which is part of the RENTAS system, is an on-line book entry system that effects and records
the settlement of issued and traded securities in RENTAS i.e. Government securities, BNM papers and
unlisted corporate bonds (private debt securities). Apart from facilitating the electronic settlement of
deals on a DvP basis, the system also dematerialised scripts and consequently reduces the risk
associated with having to use paper certificates (e.g. delay, loss, theft), while enhancing the overall
efficiency and competitiveness in the capital market.
4.4.1.1.Institutional framework
SSDS is owned by BNM and operated by MyClear. The details of the ownership are described in
Section 3.1.1.1.
4.4.1.2. Participation
The details of the access criteria and membership are described in Section 3.1.1.2.
4.4.1.3. Types of transactions
In SSDS, settlement of securities transactions is done on DvP basis, that is, both scripless securities and
funds are effected on a trade-by-trade basis, with final (unconditional) transfer of the securities from
the seller to the buyer (delivery) occurring as the final transfer of the funds from the buyer to the seller
(payment).
4.4.1.4. Operation of the system and settlement procedures
SSDS connects security dealers via system networking, in which the FES, which is installed at
securities dealers computer system, links up to CHS at MyClear. The CHS will accept, validate and
acknowledge securities transactions sent from a participating member institution (the sending party)
and transmit the transaction to another member institution (the receiving party) connected to the
securities system.
The seller of the securities would initiate the transaction by sending an Unconfirmed Sales/ Transfer
Advice to the buyer via the SSDS. The buyer will verify the details on the advice and has the option to
confirm the transaction or reject it if the details do not correspond with what has been agreed upon.
Only upon confirmation from the buyer will the transaction be posted to the sellers and buyers
respective securities and cash accounts maintained with the system.
A sale/purchase of securities from one securities account to another involves a book-entry mechanism
and an intra-day settlement of funds in the cash settlement account maintained with BNM. The
RENTAS system is a DvP system as it settles securities and funds simultaneously in real-time, on a
gross basis throughout the operating hours. The updating or settlement for SSDS transactions will be
effected on the settlement date as follows:
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Table 6
SSDS transactions settlement
Trading Hours
9.00 a.m. 3.00 p.m.
9.00 a.m. 4.30 p.m.
9.00 a.m. 4.30 p.m.
9.00 a.m. 4.30 p.m.
Settlement Deadlines
by 5.30 p.m. on T
by 11.00 a.m. on T+1
by 11.00 a.m. on T+2
by 11.00 a.m. on value date
4.4.2. Equities
The secondary market trading of stocks, shares and quoted debt securities are carried out entirely in
Bursa Malaysia. An equities trading, Bursa Securities, was established to handle and monitor equities
market activities.
4.4.2.1. Participants
The business of dealing in equities is carried out by POs of Bursa Securities. The primary laws and
regulations governing the business activities of POs are SCA, CMSA, Securities Industry (Central
Depositories) Act 1991, Companies Act 1965 and the Rules of Bursa Securities.
All licensed and registered POs are allowed to deal in securities for their clients and/or proprietary
positions. Traders are employed by POs to take and execute orders. They are also required to be
licensed under CMSA and registered with Bursa Securities.
4.4.2.2. Trading
On 9 November 2009, Bursa Malaysia introduced the Direct Market Access (DMA) (i.e. a zero-touch
electronic trading solution which enables investors to route orders directly to the Exchange for
immediate execution) for the equities market to enhance trading efficiency and accessibility for market
participants.
4.4.2.3. Settlement
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Details of the settlement are described in Section 4.2.4.
If the selling client fails to deliver to the PO on the due date, and consequently, the PO, having sold the
securities, is unable to deliver to Bursa Clearing (S) on the due date, Bursa Securities will institute an
automatic buying-in against the PO concerned without notice on T+3. If the buying-in cannot be
successfully done on the first market day due to inactive trading of such securities or some other
reasons, the buying-in exercise shall be continued until the required quantity of the said securities are
fulfilled. Delivery of securities on buying-in transaction shall be effected by way of book entry on the
date of the buying-in contract itself. Payment of securities shall be effected on first market day
following the date of the buying-in contract.
4.4.2.4. Risk management
The details of the risk management are described in Section 4.2.5.
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