Demand fuels interest in SGX ringgit futures

This is despite BNM’s warning against ringgit futures trading to curb speculation

By NG MIN SHEN

Bank Negara Malaysia’s (BNM) warning against ringgit futures trading in Singapore is meant to curb speculation, but market demand is fuelling the interest in the trades of the local unit.

Malaysia’s central bank on Wednesday criticised the Singapore Exchange (SGX) and the Intercontinental Exchange (ICE) for introducing ringgit futures trading, which BNM said was “inconsistent with Malaysia’s foreign-exchange administration (FEA) policy and rules”.

Malaysia has reiterated that the ringgit remains a non internationalised currency, and any offshore trading of the ringgit — whether as a non- deliverable forward (NDF) traded out of offshore financial centres or as futures, options and other derivative contracts outside of Malaysia — is against the national policy.

Oanda Corp head of trading for Asia Pacific Stephen Innes said it appears the central bank remains vigilant on speculative activity related to the ringgit.

“But it’s the market makers and speculators who provide liquidity. So without that mar- ket element, ringgit liquidity via onshore liquidity remains a concern,” he told The Malaysian Reserve.

SGX and ICE have not made any statement over BNM’s warnings.

Innes said the SGX’s introduction of ringgit futures trading was due to demand from the international community for ringgit-denominated currency hedges.

“Most certainly SGX and ICE could provide a more vibrant marketplace for ringgit hedges and would attract more investors back into ringgit capital markets, which is a good thing. A regulated exchange is where these products should be trading, and I hope all parties involved will keep the discussion open,” he said.

BNM warned that contravention of the FEA is an offence under the Financial Services Act 2013 and the Islamic Financial Services Act 2013. It said appropriate action will be taken against any person who does not comply with the prevailing rules and regulations.

In November last year, the central bank insisted that ringgit trading by local and foreign banks cease trading the ringgit on the NDF market abroad.

It said most of the offshore trading in the NDF market was speculative and had influenced the ringgit value against the US dollar. The ringgit was one of the worst performing currencies last year against the greenback. The central bank had blamed offshore ringgit trading as one of the reasons behind the steep drop.

BNM also introduced a requirement for local exporters to convert a minimum of 75% of their export proceeds into ringgit. The ringgit derivative contract in Singapore was launched last month.