Business

Friday May 8, 2009

Bursa looking at exchange traded bonds

By YAP LENG KUEN


Instrument will enable the structuring of retail offerings by firms and banks

lengkuen@thestar.com.my

PETALING JAYA: Bursa Malaysia is looking into the feasibility of exchange traded bonds (ETBs) to be issued by listed companies, private companies and financial institutions, said chief operating officer Omar Merican.

“This will enable the structuring of a retail offering that provides further flexibility to issuers in fund-raising exercises, and complements the existing retail offerings which range from equity instruments to structured deposits and baskets of assets,” Omar told StarBiz in an email reply. “However, this is still in the preliminary stage of evaluation.’’

»This will provide further flexibility to issuers in fund raising exercises« OMAR MERICAN

An ETB is essentially a fixed income instrument listed on the stock exchange for broader participation by retail investors.

It creates a new class of investors for the debt market as the wholesale bond market is currently limited to institutional investors due to its transaction size, according to Omar.

The difference between the proposed ETB and an exchange traded fund (ETF) is that an ETF is essentially a unit trust fund that is listed and traded on a stock exchange.

The ETF is designed to provide returns that closely corresponds to the performance of a benchmark index.

Units of ETF are traded in the same way as any other security on Bursa.

For the ETB to be accessible to retailers, Bond Pricing Agency of Malaysia Sdn Bhd CEO Meor Amri Meor Ayob suggested trading lots of RM1,000 (nominal value) via cash trading, for example, through direct debit/credit to designated bank accounts of investors.

He also proposed that transaction costs be set at a nominal value based on the number of transactions and not as a percentage of the trade, and that Bursa should also be the central depository institution to maintain the ownership register to further minimise transaction cost.

In good times, equities are certainly a draw for most investors.

“However, in recent times, investors are reminded of the stability and consistency bond investing offers as instruments such as bonds, mutual funds and ETFs can potentially outperform stocks over the mid to long term,’’ said HwangDBS Investment Management Bhd chief investment officer David Ng.

On a macro perspective, the fixed income asset class as a whole forms a necessary component in an investor’s overall portfolio and allows them to balance the portfolios’ overall performance due to its less volatile nature, especially when equities are lagging.

“However, this does not mean that bonds will improve when the equities market is down. Bottom line, bonds are generally safer and are apt for more conservative and risk-averse investors. However, the stock market is still the place to go if you have the appetite for greater risk in exchange for greater returns,’’ Ng said.

On the low volumes traded on the secondary bond market, Omar of Bursa Malaysia said: “Bursa is working with the Securities Commission, Bank Negara and market participants to encourage more trading to improve liquidity in the market.”

Bursa is currently focussing on the enhancement of price discovery (the process of arriving at a transacted price between buyers and sellers) and the dissemination to improve accessibility and liquidity in the secondary bond market, he added.

“Bursa will continue with its efforts to engage with market players to encourage participation by all players,” Omar said, referring to views that the secondary market was dominated by large players.


BURSA : [Stock Watch] [News]


For latest Bursa Malaysia indices, charts and other information click here

  • E-mail this story
  • Print this story