Malaysia to tighten fixing onshore rates

Malaysia’s central bank will tighten rules on the fixing of onshore reference rates for the ringgit currency, two sources told Reuters on Thursday, paving the way for more regulators in Southeast Asia to follow suit.

Bank Negara’s new rules are part of a wider move in the region to overhaul the process of setting key currency rates after evidence emerged of traders from banks in Singapore colluding to manipulate the market.

The move by Malaysia comes after its central bank held talks with other Southeast Asian regulators this month to discuss ways to overhaul the reference rates for offshore non-deliverable currency forwards (NDFs), which are said to undermine foreign exchange controls.

This marks a shift away from a set of rates now overseen by a local banking association in Singapore that was found to have been subject to attempts at manipulation. The set includes spot
currency and interest rates for the ringgit, Singapore dollar, Thai baht and Indonesian rupiah.

Bank Negara has asked the local forex association to increase the number of banks contributing to the ringgit reference rates to 15 from 11 previously and narrow the bid-offer spread, two sources with direct knowledge of the matter told Reuters.

"The central bank has come up with this initiative to make the local rate fixing process more robust," said one of the sources who declined to be named as he is not authorised to speak to the
media.

Bank Negara is expected to issue a statement later today.

The plans are unlikely to have impact on currency market flows, traders said. The Malaysian currency rose 0.3 per cent to 3.0910 per dollar as of 0328 GMT, breaching a 200-day moving average at
3.0940.

Earlier, it touched 3.0865, its strongest since February 14, as short-covering on improving global risk appetite intensified.

Malaysia’s central bank has already directed banks in January to use the domestic reference rate tied produced by the country’s foreign exchange association for ringgit foreign exchange contracts.

The ringgit was the second most traded currency in Southeast Asia after the Singapore dollar in 2010 although it accounted for just 0.3 per cent of total global foreign exchange market turnover daily, according to the Bank for International Settlements.-- Reuters