FINANCIAL

MARKET IN
MALAYSIA
(INV537)
NURULASHIKIN ROMLI
 Overview of Capital Market and Money Market

Overview of Islamic Financial Market

CONTENT Developments of Securities Market

The History and Development of Securities Market in

Malaysia

Securities Industry and its Significance to the Malaysian

Economy

Participants in the Malaysia Equity Markets

Types of Securities Traded on Bursa Malaysia Securities

Berhad
Learning Objectives
At the end of the course, students should be able to:
 Explain the financial market in Malaysia.
 Explain the functions of each market under the financial market.
 Differentiate the roles and functions of each market in financial market.
 Discuss the securities market in Malaysia.
 Explain the History and Development of Securities Market in Malaysia.
 Explain the Securities Industry and its Significance to the Malaysian Economy.
 Explain the types of Securities Traded on Bursa Malaysia Securities Berhad.
 A financial market is a market in which people and entities
can trade financial securities, commodities and other
fungible items of value at low transaction costs and at
prices that reflect supply and demand.

Financial
Market Securities include stocks and bonds, and commodities
include precious metals or agricultural goods.

Financial
Market

Money market Capital market

Derivative
Stock market Bond Market Market
Financial market in Malaysia
Financial Market

Money & Foreign

Derivatives
Exchange Capital Markets Offshore Market
Markets
Markets
• Commodity
• Money • Equities • Labuan
Futures
Market Markets International
• KLSE CI
• Foreign • Bond Offshore
Futures
Exchange Markets Financial
• KLIBOR
Market Centre (IOFC)
Futures
 Facilitates Price Discovery

The price of any goods or services is determined by the forces of demand and supply.

Function of Like goods and services, the investors also try to discover the price of their securities.
The financial market is helpful to the investors in giving them proper price.

Financial
Market Provides Liquidity to Financial Assets

This is a market where the buyers and the sellers of all the securities are available all
the times. This is the reason that it provides liquidity to securities. It means that the
investors can invest their money, whenever they desire, in securities through the
medium of financial market. They can also convert their investment into money
whenever they so desire.

Reduces the Cost of Transactions

Various types of information are needed while buying and selling securities. Much
time and money is spent in obtaining the same. The financial market makes available
every type of information without spending any money. In this way, the financial
market reduces the cost of transactions.
MONEY MARKET

Money market is the part of financial market where instruments with high liquidity
and very short-term maturities are traded.

They usually borrow and lend money with the help of instruments or securities to
generate liquidity.
INSTRUMENT MONEY MARKET
TREASURY BILLS - Safest money market instruments as they are
issued by central government with zero-risk instruments. To help
finance federal government deficits.

COMMERCIAL PAPER - Short term debt instrument issued to get

money. The longer the maturity on a note the higher the interest
rate the issuing institution must pay

REPURCHASE AGREEMENTS (REPOS) - Purchased security from a

dealer with the agreement that they will be sold back at a future
date for a higher price

BANKERS' ACCEPTANCES- Bank guarantees that the buyer or

bank’s customer will pay the seller at a future date. Issued for the
purpose of financing of accounts receivables, inventories and
meeting short term liabilities
FUNCTIONS OF MONEY MARKET
1. Money markets exist to facilitate efficient
transfer of short-term funds between
holders and borrowers of cash assets.

2. Allow government to raise funds.

3. For the lender/investor it provides a

good return on their funds.

4. For the borrower, it enables rapid and

relatively inexpensive acquisition of cash to
cover short-term liabilities.
FOREIGN EXCHANGE MARKET
A foreign exchange market refers to buying foreign
currencies with domestic currencies and selling
foreign currencies for domestic currencies.

Exporters sell foreign currencies for domestic

currencies and importers buy foreign currencies with
domestic currencies.

Participant : central banks, investment management

firms, retail forex brokers, investors
TYPES OF FOREIGN
EXCHANGE MARKET
Spot market
These are the quickest transactions Forward Contract Swap
involving currency in foreign markets. a transaction is concluded with the is exchange of 2 currencies on the
These transactions involve price fixed immediately, even though spot with the agreement to re-
immediate payment at the current the delivery will be at a stipulated exchange them back at some future
exchange rate which is also called date in the future. date.
the spot rate.

Future market
Option
where foreign currencies may be
to hedge assets and liabilities
bought and sold for delivery at future
against changes in future foreign
date. This hedging facility is popular
currency by enter into a fixed forex
for firms involved in international
rate for future transaction.
trade and for speculator.
FUNCTIONS
OF FOREIGN 1. Transfer of purchasing power
EXCHANGE Transfer of purchasing power is
necessary because
2. Provision of credit
The movement of goods
MARKET international transactions
normally involve parties in
between countries takes time
also inventory in transit must
countries with different be financed.
national currencies.

3. Minimizing foreign exchange

risk
The foreign exchange market
provides "hedging" facilities for
transferring foreign exchange
risk to someone else.
 Suppliers of capital generally want the
maximum possible return at the lowest
possible risk, while users of capital
want to raise capital at the lowest
CAPITAL possible cost.

MARKET
Capital markets typically involve issuing
instruments such as stocks and bonds
for the medium-term and long-term.
Participant:

1. individual investors

2. institutional investors such as pension funds and

mutual funds,
The capital market are source of
3. municipalities and governments, financing for companies around the
4. companies and organizations world. The most famous of the capital
markets are stock market and bond
5.banks and financial institutions.
market.
 STOCK BOND DERIVATIVES
It is a place where the government and company’s The issuance and trading of debt securities occurs. The market in which derivative securities trade.
securities are bought and sold.

A stock market in any country is represented by an The bond market primarily includes government-issued A derivative is a security with a price that is dependent
established body / exchange which facilitates the securities and corporate debt securities and facilitates the upon or derived from one or more underlying assets.
trading of shares. transfer of capital from savers to the issuers or organizations
requiring capital for government projects, business
expansions and ongoing operations.

Stock market is a place where equity fund is raised. Most trading in the bond market occurs over-the-counter, The derivative itself is a contract between two or more
through organized electronic trading networks parties based upon the asset or assets. Its value is
determined by fluctuations in the underlying asset.

USA: New York Stock Exchange (NYSE) Although the stock market often commands more media The most common underlying assets
Japan: Tokyo Stock Exchange attention, the bond market is actually many times bigger and include stocks, bonds, commodities, currencies, interest
England: London Stock Exchange is vital to the ongoing operation of the public and private rates and market indexes.
Singapore: Singapore Exchange (SGX) sector.
FUNCTIONS OF STOCK MARKET

Provides liquidity to
Marketplace for Marketplace for Mechanism for
allow investors to
companies to raise transaction determining the
quickly and easily
capital / money. securities. price of securities.
sell securities.

As a medium of Provide Provide

investment for information on mechanism of
those with surplus price and volume listing of new
money. of trading. shares.
 PRIMARY MARKET

•A market where new securities are bought and

sold for the first time between issuer and
PRIMARY VS investors.
•The issue is backed by an underwriter.
SECONDARY •Securities are bought directly from the company.
•New issues of debentures, preference share and
equity securities are sold here.

SECONDARY MARKET

•A market where existing securities are traded

among investors.
•Once the security begins to trade among
investors, it becomes part of the secondary
market.
•Share are traded between two investors.
Function of Primary Market
2. Liquidity
1. Capital Formation It provides
attractive issue to the potential investors As the securities issued in primary
and with this company can raise capital market can be immediately sold in
at lower costs. secondary market the rate of liquidity is
higher.

3. Diversification
Many financial intermediaries invest in Prospectus containing all details about
primary market; therefore there is less the securities are given to the investors
risky if there is failure in investment as hence reducing the cost is searching
the company does not depend on a and assessing the individual securities.
single investor.
 INITIAL PUBLIC OFFERING (IPO)
METHODS OF •The company raises funds by selling the new shares to the public.

RAISING CAPITAL •The shares are purchased by public investors.

•The new issue is made with an investment bank as the underwriter.
IN THE PRIMARY DIRECT PLACEMENT
MARKET •Shares are sold directly to selected investors.
•Normally issued to institutional investors such as Tabung Haji or
PNB.
•There is no involvement of underwriter.
RIGHTS OFFERING
•New shares are sold to existing common shareholders to maintain
their proportion of ownership.
•Preemptive right: allows existing shareholders to buy the new shares
first before it is offered to the public.
SALE OF SHARES TO EMPLOYEES (ESOP)
•Shares are sold to employees at a discount price.
•Done to give opportunity for employees to own equity of the
company.
Function of Secondary Market
1. Regular Information
Provides regular information about the value of securities.

2. Price Observation
Helps to observe the prices of bond and their interest rates.

3. Liquidity
Offer the investors liquidity for their financial assets.

4. Low Cost of Transaction

 Securities market is an exchange where sale and purchase
transactions of securities are conducted on the base of
demand and supply.

SECURITIES A well-functioning securities market should able to provide

timely and accurate information on the past transactions,
MARKET liquidity, low transaction costs and securities prices that rapidly
adjusted to all available information.
Securities are typically the documents that are evidence of
ownership (shareholding) or debt (debenture/bond).

Financial
Market ‘Securities’ is the term used to describe any “interest-bearing or
dividend-paying” paper traded in financial markets.
Money Capital
market market

Within the context of financial markets, ‘securities’ is a general

Stock Bond
Derivative term used and applied to instruments such as stocks, shares,
Market debentures, notes, bills, bonds and etc.
market Market
STOCK EXCHANGE
An organization which provides the market place or facility for the buying and selling of securities
under strict rules, regulations and guidelines.

Stock exchanges in Malaysia comprise Bursa Malaysia Securities Berhad, the securities exchange
and Bursa Malaysia Derivatives Berhad, the futures and options exchange.
Malaysian Stock Exchange
The Malaysian stock exchange is called
Bursa Malaysia Securities Berhad.

It governs the conduct of its participants in

securities dealings and is responsible for the
surveillance of the market place as well as
for the enforcement of its listing
requirements which spell out the criteria for
listing, disclosure requirements and
standard to be maintained by listed
companies.
STOCK STOCK
MARKET MARKET
Stock market consists of the trading of
stocks and related securities on all
exchanges including the over the counter.

The stock market is the central market place

PRIMARY SECONDARY
for the raising of equity funds by
corporations and governments.
MARKET MARKET
It provides a market place where company
and government securities may be bought
and sold.
THE HISTORY AND 1930-1937
DEVELOPMENT • The first securities business organization in Malaysia was the
Singapore Stockbrokers’ Association
OF SECURITIES • It was re-registered at the Malayan Stockbrokers’ Association
MARKET IN 1960-1965
MALAYSIA • The Malayan Stock Exchange was established in 1960 and the
public trading of share commenced
• In 1964, the stock exchange in Malaysia was established. With
the session of Singapore from Malaysia in 1965, the stock
exchange of Malaysia become known as the Stock Exchange of
Malaysia and Singapore
1973-1976
• Currencies interchangeability between Malaysia and Singapore
ceased and the Stock Exchange of Malaysia and Singapore
was divided into the Kuala Lumpur Exchange Berhad and
Stock Exchange of Singapore.
• The Kuala Lumpur Stock Exchange which was incorporated on
December 14 1976 as a company limited by guarantee, took
over the operation of Kuala Lumpur Stock Exchange Berhad
2004

•On April 2004 changed name to Bursa Malaysia Berhad following the demutualization exercise, the purpose of
which to enhance the competitive position and to response to global trend in the exchange sector by making more
customer-driven and market-oriented

2005-2007

•On 18 March 2005, Bursa Malaysia was listed on the Main Board of Bursa Malaysia Securities Berhad
•We accomplished double achievement when the exchange receive certification for conformance to the ISO 9001:
2000 Quality Management System and ISO 14001: 2004 Environmental Management System standard on 5
October 2007

2009

•On September 2009, Bursa Malaysia Berhad entering into a strategic partnership with Chicago Mercantile
Exchange (CME) with the view to improve accessibility to its derivatives offering globally
SECURITIES Statutes Regulatory Bodies
INDUSTRY AND ITS
SIGNIFICANCE TO • CMSA 2007 • Securities
THE MALAYSIAN • SC Act 1993 Commision (SC)
ECONOMY • Company Act • Companies
1965 Commision
Supervision of the Securities
• BAFIA 1989 Malaysia (CCM)
Industry • Bursa Malaysia
• SICDA Act 1991
Securities Berhad
• Malaysia Central
Depositories
• Foreign
Investment
Committee
Securities Commission (SC)

represented securities industries.

primary resource for global securities
industries.
protect and advance the interest.
 1. Institutional Investors
PARTICIPANTS IN Represented by a variety of institutions that include pension funds, life and general
insurance funds, unit trust funds, corporate investors and international investors.
THE MALAYSIA
EQUITY MARKET 2. Retail Investors
Include short term and long term investors in Malaysian stock market.
Some retail investors in the Malaysian stock market are speculators, others are more
conservative and tend to deal only in blue chip stocks.
Some retail investors who have a high net worth may have professional fund managers
who manage their portfolio in accordance with their specific investment requirements.

3. Intermediaries
Participating Organizational (PO) or dealers as they are commonly known play a critical
role in the securities industry as the link between the client and the stock market
Participating Organizations:

“a company which carries on the business of dealing in securities and for the time being
recognized as Participating Organization of the exchange in accordance with the provisions
of Rule 302 and “participantship” shall be construed accordingly.

Therefore, a stockbroking company or an Investment Bank may become a PO subject to the

fulfilment of the relevant requirements.

PO can be classify by two types: Universal Brokers Non Universal Broker

Affin Investment Bank Berhad BIMB Securities Sdn Bhd

Alliance Investment Bank Berhad FA Securities Sdn Bhd

AmInvestment Bank Berhad InnoSabah Securities Berhad

Hong Leong Investment Bank JPMorgan Securities (M) Sdn

Berhad Bhd
Types of
Securities Ordinary Shares/Stocks
Shares in a company which give holders the rights
Preference Shares
Shares of a different class from ordinary shares
which give holders a preferential position over
Debentures
Securities which is evidence of indebtedness of a

Traded in
of ownership of the company such as the right to
ordinary shareholders in respect of the payment of corporation for monies borrowed. Fixed interest
share in the profits of the company by way of
dividends (normally of a fixed amount) and may be securities bearing a maturity date and a specific
dividend as well as the right to vote in general
preferred as regards to the distribution of assets in rate of interest.
meetings and to elect and dismiss directors.
the event of liquidation.

BMSB
Bonds Warrants
Loan Stock/Notes
Documents recording a loan specifying the date of Give holders a right, but not an obligation to
Securities issued by a company for a loan made by
its maturity and the rate of interest to be paid at subscribe for a specified number of new ordinary
investors. Loan stocks may be secured, unsecured,
each specified period. It is a common name for shares at a specified price during a specified
convertible or non-convertible but are often
fixed interest securities of more than 1 year in period. The company issues the warrants which are
unsecured.
term. usually attached to an issue of loan stock.

Call Warrants Exchange Traded Funds (ETF)

Give holders a right, but not an obligation to buy a A collective investment vehicle which is an index-
fixed number of shares at the specified price within based fund that allows investors to buy or sell Real Estate Investment Trust (REIT) units
a limited period. Call warrants are issued by parties exposures to an index through a single financial Units in a trust fund which invests in real estate.
other than the issuer of the underlying assets instrument. ETFs are shares of a portfolio and not
based on existing shares. an individual company.
THE END