Page 55 - CMP3

to-client platforms, which improve price transparency and liquidity while enhancing trading efficiency through the digitisation of OTC trading workflow. The ‘electronification’ of these asset classes has also created new opportunities to broaden their appeal to new issuers and investors. At the same time, new instruments such as digital assets have also emerged, capturing the imagination of a new generation of investors. Moving forward, as trading platforms for alternative assets become more prevalent, the SC may continue to facilitate such platforms where there are proven value propositions for the Malaysian market.
3.1.3 FACILITATING DIVERSITY OF THE INTERMEDIATION LANDSCAPE
The intermediation landscape in both equity and bond markets in Malaysia has largely remained homogeneous over the last decade. In the equity market, a majority of securities brokers maintain the universal stockbroking model which provides research, trading as well as clearing and settlement services. Bond market intermediation has remained largely traditional and manual with the banks.
In comparison, markets globally have seen the emergence of new intermediary models and specialisation, which caters to changing investor needs. For example, demand for more independent and insightful equity research has resulted in the emergence of research marketplaces and non-traditional research providers. The increasingly complex trading needs, coupled with rapid changes in trading technology, have driven growth in algorithm and AI trading. Similarly, growing demand for no-frills and cost-efficient trading access has driven the growth of execution-only or digital-only equity brokers. Meanwhile, greater demand for post-trade efficiencies has driven the growth of clearing-only entities or utilities. In the bond market, demand for greater efficiencies and transparency has driven the growth of digital bond issuances, workflow digitisation platforms, e-OTC trading platforms, AI-based credit rating services and other new innovations.
In line with global trends, efforts are currently underway within the Malaysian landscape to allow for the separation of trading and clearing membership. This will pave the way for the entry of more specialised and capital-efficient intermediary models, including digital-only or execution-only brokers, algo-based brokers, multi-asset brokers and clearing-only institutions. Diversity in the intermediation landscape may spur capital market innovation and bring greater value to Malaysian investors. (Diagram 5)
Market makers are an integral part of the ecosystem to improve market efficiency and provide greater liquidity, especially for less traded and less liquid stocks. Efforts were made in the past to enhance this segment of the ecosystem, which includes the expansion of the qualifying criteria for the participation of foreign entities and the introduction of a new category of market makers. Further enhancement of the market making framework may be vital to drive greater liquidity and market vibrancy.
Market makers rely on the pool of Securities Borrowing and Lending (SBL) shares to hedge their positions, such as for structured warrants, single stock futures and ETF. However, the activities have been mostly nascent, with only 218 stocks available for SBL activities and total lending of RM3.3 billion as at December 2020. With a limited number of intermediaries offering the service and a small pool of available securities, the cost of lending and borrowing remains relatively high. Further evaluations may be conducted to expand the current SBL framework to enhance participation and market vibrancy. This can be achieved by expanding the pool of available securities and increasing the number of participants through the enhancement of the Central Lending Agency model. Greater awareness of the scheme’s benefits will also need to be championed and marketed to the investing public.
CAPITAL MARKET MASTERPLAN 3
53