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FINANCIAL LAW - Commodities Law
Related Topics : Banking Law . Offshore Banking Law . Broker Disputes . Commodities Law . Investment Terms . Raising Capital . Securities Law . Buying On Hire Purchase . Exchange Control Rules . Danaharta Act
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SELF-REGULATORY ORGANIZATIONS (SROs) ?

The scheme of regulation in the future industry in Malaysia is one of co-regulation between the Commission (as the public authority) and the exchanges and clearing house, the self-regulatory organizations (as front-line regulators).

Responsibility for the day-to-day supervision of the marketplace, approval for participation into the futures market, prudential control and membership regulatory responsibilities are place with the exchanges and the clearing house.

COMMEX Malaysia as a self-regulatory organization performs its regulatory functions by establishing and enforcing a body of policies and rules know as the Business Rules. The Business Rules are the basis of the contractual relationships between COMMEX Malaysia and its members. The Business Rules may also be amended by the Exchange from time to time, subject to the approval of the Securities Commission.

COMMEX Malaysia operates under the supervision of the Securities Commission (SC) of Malaysia. Its activities are governed by the Futures Industry Act (FIA) 1993. In addition, the Exchange falls under the jurisdiction of the Ministry of Finance (MOF).

A diagram illustrating the regulatory structure of the futures industry in Malaysia is as follows :



WHAT ARE THE FINANCIAL & OPERATIONAL SAFEGUARD SYSTEM ADOPTED TO PROTECT THE FINANCIAL INTEGRITY OF THE MARKETPLACE ?

 KLCE together with its Clearing House adopts a financial and operational safeguard system that is comparable to the best international practices. The financial and operational safeguard system is designed to provide the highest level of safety and the early detection of unsound financial practices on the part of any Member. Its purpose is to protect all Members and the users of the marketplace from the consequences of a defaulting participant in the marketplace and specially designed to :
  1. Ensure that sufficient resources are available to cover future obligations
  2. Prevent the accumulation of losses
  3. Result in the prompt detection of financial and operational weaknesses
  4. Allow swift and appropriate action to be taken to rectify any financial problems and protect the clearing systems and the integrity of the marketplace.
All contracts executed on the Floor of the KLCE are guaranteed, initially by the respective Clearing Members and thereafter by the Clearing House once the contracts have been matched and accepted for clearing. The Clearing House only deals with its Clearing Members. Therefore, any KLCE Member who wishes to trade directly on the Floor of the KLCE, and who is not a Clearing Member himself, has to appoint a Clearing Member to clear his trades for him. This is to ensure that there is a financially strong party standing behind all contracts as soon as they are transacted.

Once a contract is accepted for clearing by the Clearing House, the Clearing House will substitute itself as the buyer to the seller and the seller to the buyer. The Clearing House will then hold each Clearing Member accountable for every position it carries regardless of whether the position is being carried for the account of another Member, for the account of a non-member client or for the Clearing Member's own account. The Clearing House does not look to clients for performance or attempt to evaluate their credit worthiness or market qualifications. Instead, it looks solely to the Clearing Member carrying and guaranteeing the account to secure all payments and performance obligations.

...More information on Financial Safeguards
...More information on Operational Safeguards

WHAT ARE THE BUSINESS RULES ESTABLISHES AND ENFORCES BY COMMEX MALAYSIA ?

 Business Rules - Click here to select and download the topic of your interest.

Information compiled and extracts
from COMMEX Malaysia
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