Page 60 - SC Annual Report 2018 (ENG)

Securities
Commission
Malaysia
ANNUAL
REPORT
2018

EnSuRInG RESILIEncE oF THE cAPITAL developments in the Korean Peninsula, the US
MARkET mid-term election, Turkish currency crisis as well as
US-China trade tensions. Impact assessments were
Systemic risk surveillance in the capital undertaken to ascertain potential spill-over effects to
market the global and emerging markets as well as the
domestic financial markets. Risk assessments were
The Malaysian capital market remained resilient, also carried out on fund flows following further
despite the challenges and volatilities in global tightening of financial conditions in light of progressive
markets. Uncertainties heightened across global interest rate hikes by the US Federal Reserve.
markets throughout 2018 with escalating trade
tensions, geopolitical issues and normalisation of The development in the relevant Morgan Stanley
monetary policies in developed economies. These Capital International (MSCI) Index constituents was
have affected risk sentiments, amid increased monitored closely, particularly the inclusion of China
volatility and liquidity tightening in global financial A Shares. The proposed inclusion of Saudi Arabia,
markets. Kuwait and Argentina into the MSCI Emerging Market
Index in 2019 may adversely affect the overall
These developments underscore the need for the SC weightage of Malaysian companies in the index. To
to continuously monitor and assess systemic risk ensure the Malaysian equity market remains attractive
concerns. This includes early detection of emerging to foreign investors, measures are being considered
risk trends and vulnerabilities that could contribute together with industry stakeholders, to enable listed
to the build-up of systemic risks in the capital companies to be allocated higher weightage in the
market. The SC’s assessment of risks in 2018 were index.
deliberated at various levels to enable the
involvement and participation of various stakeholders In addition, the potential impact to the local market
in relation to markets, firms and products. and participants following the EU Resolution to
phase-out the use of biofuels based on vegetable
Given the importance of having in place robust and oils by 2020, as well as the change in Overnight
up-to-date approaches for identification, monitoring, Policy Rate (OPR) in January 2018 were also
mitigation and management of systemic risks, the reviewed. The impact to the capital market was
SC continues to review and enhance its market risk observed to be negligible.
surveillance framework to ensure its effectiveness
and adequacy. The SC also took steps to strengthen The SC also continued to collaborate closely with
business continuity arrangements at both industry BNM in areas of common interest and concern,
and the SC’s level as part of its efforts to better given the interconnectedness of the financial and
manage systemic risks. capital markets. In 2018, the SC exchanged
information and shared assessment outcomes on
global risk trends and developments as well as the
Assessing vulnerabilities and risks to movement of funds across different market
systemic stability segments to ascertain potential vulnerabilities.

The SC continued to exercise its market risk To gain better insight of market trends and risks in
oversight function through the Systemic Risk the increasingly volatile market environment amid
Oversight Committee (SROC), which is the tightening liquidity conditions, the SC increased
overarching committee for the deliberation of risks the frequency and intensity of its engagements
and corresponding safeguards. Continuing from its with market participants. The engagements were
work in 2017, the focus in 2018 centred on important not only to validate the risk assessment
geopolitical issues and normalisation of monetary work, but also to understand trading and investment
policies. The SC monitored among others, sentiments in the market.

50 | PART 2 »» SHAPING MARKET CONDUCT

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