Bank Negara Malaysia Framework for Electronic Trading Platforms
On 8 November 2019, Bank Negara Malaysia (BNM) issued its Framework for Electronic Trading Platforms (“Framework”) which came into effect on 11 November 2019. This Framework effectively supersedes BNM’s Guidelines on Electronic Broking System by Licensed Money Brokers issued on 1 August 2005.
The Framework applies to the following market participants in the wholesale financial markets in Malaysia –
- approved money brokers operating electronic broking platforms; and
- operators of electronic trading platforms.
The Framework sets out (a) the approval requirements for platform operators to be eligible to provide their services on electronic trading platforms in the wholesale financial markets in Malaysia; (b) the internal control requirements applicable to approved platform operators to safeguard the system integrity and data confidentiality of such platforms; and (c) the requirements for approved platform operators to put in place and maintain appropriate internal governance policies and procedures in providing their services. The term “electronic trading platform” when used in the Framework includes an electronic broking platform.
The Framework does not apply to the following persons:
- an operator of a recognised market registered, or a stock market of an approved stock exchange, under the Capital Markets and Services Act 2007 which offers facilities that enable the trading of financial instruments other than in the money market or foreign exchange market;
- a stock market operated by an overseas stock exchange which is under the regulatory or supervisory oversight of the relevant authority, or any facility offered by such stock exchange; or
- a proprietary single-bank platform offered solely for bilateral transactions undertaken with the bank for financial instruments in the money market or foreign exchange market.
Paragraph 8.1 of the Framework stipulates that a market participant seeking to operate an electronic trading platform must obtain BNM’s prior written approval. Paragraph 8.3 of the Framework sets out the various documentation / information to be submitted with the application for approval. Where BNM approval is obtained, the approved platform operator shall commence its operations within such period as stipulated by BNM in the approval letter. An application for the renewal of such approval must be made to BNM in writing at least ninety (90) days before expiry of the approval period. BNM may approve an application for approval or a renewal application for a period of three (3) years or such other period, with or without conditions or reject the application.
Key features of the Framework include requirements –
- to carry out an independent audit review prior to submitting an application for approval under paragraph 8.1, and a post-implementation review within six (6) months from the date of the effective implementation of the electronic trading platform;
- to provide prior written notification to BNM where an approved platform operator intends to offer additional services or functionalities in addition to the scope of services or functionalities approved by BNM;
- for approved platform operators to comply with the various operational requirements set out in Part C of the Framework, including –
- establishing and implementing effective policies on due diligence on prospective users prior to their on-boarding;
- establishing, maintaining and publishing proper rules, criteria and procedures for usage of the electronic trading platform;
- establishing and implementing information technology (IT) security and protection policies for the platform;
- establishing and implementing policies and procedures for record-keeping;
- adhering to applicable requirements (including risk assessments) if using cloud services to warehouse data;
- establishing and implementing business continuity arrangements in relation to the electronic trading platform; and
- carrying out and completing thorough testing of the system functionalities and capabilities of the electronic trading platform prior to deployment; and thereafter, periodic capacity testing of critical systems.
- in relation to governance as set out in Part D of the Framework, including ensuring that the board of the approved platform operator establishes and oversees the effective implementation of policies and procedures relating to the operations of the platform (including managing conflicts of interest) and that management of the approved platform operator implements such policies and procedures established by the board;
- in relation to reporting, including submitting to BNM the following information – a complete list of its onshore users, both banking and non-banking institutions at the end of each calendar quarter, which shall include details specified by BNM and any other information as may be required by BNM.
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|Ivan Ho Yue Chan