Malaysia Said to Require Local Fixings for Ringgit Contracts

Malaysia’s central bank told local lenders they must use a ringgit fixing set domestically to settle foreign-exchange contracts amid an ongoing probe into rates set by the Association of Banks in Singapore.

The new rules were sent to Malaysian lenders via a circular, according to a person familiar with the matter, who asked not to be identified. Fixings are based on an average of contributing banks’ quotes and can be manipulated if participants collude. The Association of Banks in Singapore provides offshore reference rates that are used to settle forward contracts involving the currencies of Singapore, Indonesia, Malaysia, Thailand and Vietnam.

Malaysia’s move is “an attempt at shutting out any opportunities for traders to manipulate the offshore fixing to make quick profits,” said Nizam Idris, head of Asian fixed-income and foreign-exchange strategy at Macquarie Bank Ltd. in Singapore. “Authorities are clamping down on such fixing manipulations in conjunction with the Libor scandal.”

Regulators worldwide have been broadening the scope of investigations beyond interbank interest rates to encompass more benchmarks after Barclays Plc was fined a record 290 million pounds ($463 million) for manipulating the London interbank offered rate for profit. Banks including UBS AG and Royal Bank of Scotland Group Plc have suspended some traders in Singapore, where the central bank has expanded its probe to include products tied to foreign exchange.

Singapore Probe

When contacted by Bloomberg today, the Monetary Authority of Singapore referred to a Dec. 20 statement that said reviews are ongoing and it is premature to speculate on the outcomes of these.

John Lim, who is the chief executive officer of Reputation Management Associates and acts as a spokesperson for the Association of Banks in Singapore, declined to comment on whether the group’s currency fixings were being investigated. Bank Negara Malaysia declined to comment on whether it had told banks to only use domestic fixings to settle ringgit contracts, a directive reported earlier today by Reuters.

“I guess Bank Negara is more sensitive about the volatile conditions we’ve seen in recent times in non-deliverable forwards markets and the dollar-Asia market in general,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. Using an onshore fixing may help the central bank “exert a little bit more control over the rate at which domestic onshore users settle,” he said.

Disciplinary Action

The Association of Banks in Singapore’s ringgit fixings are based on an average of 13 quotes submitted by global and Singaporean banks. Participants include Bank of America Corp., Deutsche Bank AG and United Overseas Bank Ltd.

Singapore’s central bank said in a statement in September that it asked lenders who are part of the rates-setting panel to review the process for non-deliverable forward foreign-exchange contracts. Banks should report any irregularities immediately and take disciplinary action against any staff involved, it said.

The ringgit fixing set domestically is provided by the Association Cambiste Internationale using contributions from 12 domestic and foreign banks in Kuala Lumpur. Reuters computes the average rate on behalf of ACI and publishes the level by 11:10 a.m. local time.

Policy makers in the Southeast Asian region have been discussing the issue of pricing for non-deliverable forwards, Difi Johansyah, a spokesman at Bank Indonesia, said by phone.

“We have been in talks with monetary authorities in ASEAN regarding how best to manage this issue,” he said today, without giving details of any proposals being looked at.

Unlike foreign-exchange forward contracts, where two parties agree to physically exchange currencies at a set rate at a specific date in the future, NDF traders settle the net position in U.S. dollars. Who pays and how much at the end of the contract is determined by reference to a fixing, which in some jurisdictions is set, like Libor, by a survey of banks.

Before it's here, it's on the Bloomberg Terminal.