Citi wins Bursa Malaysia settlement mandate

The US bank will be the sole settlement bank for the Malaysian stock exchange's new multi-currency securities platform.

Bursa Malaysia has appointed Citi as the sole foreign currency settlement bank for its new multi-currency securities platform, according to a press release issued yesterday.

The US bank will settle all foreign currency-denominated securities trades on the Malaysian stock exchange's new platform over its CitiDirect e-banking platform. Initially only Australian dollars, euro, Singapore dollars, US dollars and yen will be available, although Citi expects to expand its currency offering to the stock exchange on a needs basis.

"The implementation of the multi-currency securities platform is an important milestone in positioning Bursa Malaysia as one of the region's leading centres for fund-raising, trading and investment," said Yusli Mohamed Yusoff, chief executive of the stock exchange.

All trades under the new framework will be executed within an hour and, in a deft stroke that boosts its local banking business, Citi will require all participants to maintain accounts at Citi Malaysia.

Bursa Malaysia inaugurated its non-ringgit trading and settlement platform on July 13 after nearly a year of development and says multi-currency securities listings will give investors better diversification and hedging options. BNP Paribas Asset Management is expected to offer the first foreign currency security, a US dollar-denominated Asia region exchange traded fund (ETF), sometime in August.

Citi director and Malaysia head of treasury and trade solutions, Noel Saminathan, called the new system a "greenfield" project and said Citi and a host of other banks worked with the exchange to set up the settlement infrastructure for almost a year.

According to sources, Citi was shortlisted for the mandate together with one local bank and selected based on feedback from Bursa Malaysia members and the industry. Citi has previously worked with the exchange on a variety of transaction requirements.

The mandate puts Citi in the middle of what could eventually become a strong regional cross-border securities market. Bursa Malaysia has expressed interest in growing the flows in Southeast Asia, with Yusoff emphasising the possibility of "heightened integration" with the framework's launch.

However, the lack of similar multi-currency frameworks at other exchanges in the region -- only Hong Kong, the Philippines and Singapore currently offer them -- is likely to hinder Bursa Malaysia's plans. Additionally, the only regional currency Citi currently offers to traders is the Singapore dollar.

Citi's Saminathan expected currency offerings would grow based on the "cross-exchange linkages". The bank already provides foreign currency settlement solutions to the Philippine Stock Exchange and the Singapore Exchange.

One currency notably lacking from the solution is the Chinese renminbi. The central banks in China and Malaysia signed a currency swap agreement in February and last month traders in Hong Kong were the first outside the mainland to settle transactions in the Chinese currency.

Saminathan explained that the Bursa Malaysia's multi-currency mandate does not include the renminbi because the swap agreement is specifically targeted at Malaysia's imports and exports with China. For now, only Citi's Hong Kong branch is capable of handling cross-settlement in the currency through an agreement with the Bank of China.

The stock exchange mandate comes as Citi continues to win public sector treasury mandates throughout the region. Earlier this year Citi won key mandates from Bangladesh's capital city development authority, Indonesia's customs agency and Malaysia's inland revenue board.

"We have always wanted to be part of the local [treasury] infrastructure and the local industry," said Saminathan with regard to the bank's numerous recent local market wins.

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