On 17 May 2021, Bursa Malaysia Securities Berhad (“BMS”) issued Participating Organisations’ Circular No. R/R 2/2021 stating that it will be introducing a two-year Pilot Market Making Programme for Eligible Stocks (“PMMP”) from 1 June 2021.

The PMMP will allow eligible market makers to be registered with BMS (“Stock Market Maker”) to carry out market making activities in respect of eligible PMMP Stocks (“Eligible PMMP Stocks”)

Principal documents regulating PMMP

The principal documents that regulate PMMP are the Rules of BMS (in particular Parts A, B, D and E of Chapter 4) (“BMS Rules”), BMS Directive in Relation to Market Makers and Derivatives Specialists No. 4-001 (“Directive No. 4-001”), and BMS Directive on PMMP No. 4-002 (“Directive No. 4-002”).

It is to be noted that apart from introducing provisions on PMMP, Directive No. 4-002 disapplies certain provisions in Chapter 4 of the BMS Rules and Directive No. 4-001 to PMMP.

This Alert will highlight the salient features of the PMMP.

Who can be a Stock Market Maker?

An entity must be registered with BMS to be a Stock Market Maker. It must be an entity that fulfils one of the following requirements set out in Rule 4.01(1) of the BMS Rules:

  1. a Participating Organisation;
  2. a licensed bank, or licensed investment bank under the Financial Services Act 2013 in which the latter is not also a Participating Organisation;
  3. a Related Corporation of an entity in (a) or (b) which is incorporated under the Companies Act 2016 and satisfies the criteria set out in paragraphs (i) and (ii) of Rule 4.01(1)(c) of the BMS Rules;
  4. a foreign corporation which satisfies the criteria in paragraphs (i) to (iii) of Rule 4.01(1)(d) of the BMS Rules; or
  5. a Related Corporation of an entity in (d) which is incorporated under the Companies Act 2016 and satisfies the criteria set out in paragraphs (i) and (ii) of Rule 4.01(1)(e) of the BMS Rules.

In addition, the entity must also have adequate facilities and personnel to carry out its business as a Stock Market Maker in an expeditious and orderly manner, and have in place a supervisory programme and system of internal controls in respect of the matters set out in paragraphs (i) to (iv) of Rule 4.01(2)(b) of the BMS Rules.

What activities can a Stock Market Maker carry out?

A Stock Market Maker is allowed to carry out market making activities, i.e. entering bid and offer prices for Eligible PMMP Stocks in BMS’s Automated Trading System, only for its proprietary position and not for its clients or its Related Corporations. If a Stock Market Maker is not a Participating Organisation, it must enter the bid and offer prices into the Automated Trading System through a Participating Organisation.

A Stock Market Maker is allowed to carry out Permitted Short Selling on an Eligible PMMP Stock in accordance with Part E of Chapter 4 of the BMS Rules as part of its market making activities. However, a Stock Market Maker must first enter into an agreement to borrow the Eligible PMMP Stock for settlement of the Permitted Short Selling.

What are Eligible PMMP Stocks?

To qualify as an Eligible PMMP Stock under Paragraph 3(1) of Directive No. 4-002, a stock must:

  1. be admitted to the Official List;
  2. have a daily market capitalisation of RM500 million and above and a stock velocity of 35% and below; and
  3. at least 15% free float (as determined by BMS using international benchmarks such as the Bloomberg Terminal).

BMS may remove a stock from the list of Eligible PMMP Stocks if the stock no longer meets the criteria for Eligible PMMP Stocks or in any other circumstance that BMS deems fit. BMS also has the discretion not to include any stock as an Eligible PMMP Stock notwithstanding that the stock fulfils the criteria for Eligible PMMP Stocks.

The list of Eligible PMMP Stocks will be updated by BMS every six months commencing 1 June 2021.

BMS may vary the criteria for Eligible PMMP Stocks with the prior approval of the Securities Commission Malaysia.

Prohibited conduct

A Stock Market Maker must avoid any act or practice which is likely to lead to a false or misleading appearance of active trading in any securities listed on BMS or a false or misleading appearance with respect to the market for, or the price of, any such securities, or directly or indirectly be tantamount to stock market manipulations. A Stock Market Maker must also not participate in any operations by others which might have the same result as aforesaid.

Cessation and suspension

A Stock Market Maker may resign by giving not less than 30 days written notice to BMS who may accept the resignation subject to conditions.

BMS may summarily suspend, terminate or restrict the activities of a Stock Market Maker if the latter fails to fulfil any of the requirements set out in Part A (Registration Requirements) of Chapter 4 of the BMS Rules.

A Stock Market Maker will summarily cease to be registered under the BMS Rules if:

  1. it has been wound up;
  2. a nominee of a corporate voluntary arrangement, a judicial manager, a receiver or manager, or a liquidator (including an interim liquidator) has been appointed for the Stock Market Maker; or
  3. it has been convicted of any offence, within or outside of Malaysia, involving dishonesty or fraud or had disciplinary action taken against it for breaches involving dishonesty or fraud.

A Stock Market Maker who has resigned or has its registration terminated by BMS remains liable to disciplinary action for any breach of the BMS Rules or Directives issued by BMS committed whilst it was a Stock Market Maker.

Comments

It is hoped that the introduction of Stock Market Makers as a new category of market makers will fulfil BMS’s objective of improving the liquidity and price efficiency of Eligible PMMP Stocks. If the objective is achieved, the PMMP will become a permanent feature of the Malaysian capital market.