Auction

The government bond auction (specifying the size and exact date of the issuance) opened 3 business days before and closed one business day before the target issuance date. The information is publicly made available via the Fully Automated System for Issuing/Tendering (FAST) and other information providers such as Bloomberg and Reuters.

The "when-issued" (WI) trading commenced on the auction announcement date after stock creation in Fully Automated System for Issuing/Tendering (FAST). For more information on WI trading, kindly refer to the chapter on "WI trading".

The auction process of the MGS is exclusively open to the PDs, while the MGII tenders are exclusively open for PDs and Islamic PDs. For MGII, all Islamic banks are allowed to participate in the auction via the Islamic PDs. PDs are obliged to tender its minimum amount of the issuance size in order to ensure 100% subscription. Bids submitted during the auction could be based on either price or yield. The price convention is used in reopening of existing securities and for trading in the secondary market. Meanwhile, bids would be submitted in yield if it is a new issuance. In this case, the weighted average of yields accepted will be the coupon for that particular new MGS or GII issue.

All bids are submitted by PDs via Fully Automated System for Issuing/Tendering (FAST). Non-PDs or other interbank institutions could also submit their bids via a PD with a maximum allotment limit of 30% per bidder. If bids are successful, Real Time Electronic Transfer of Funds and Securities (RENTAS) will allot the securities to the bidder by lodging the securities with their appointed Authorised Depository Institutions (ADIs). Settlement would then take place automatically in Real Time Electronic Transfer of Funds and Securities (RENTAS) on a Delivery-versus-Payment (DvP) basis.

The Central Bank has the option to participate in MGS auctions with the purpose of obtaining securities for its open market operations as well as to build inventory for repo operations.. Bidding is conducted in a non-competitive manner, with the Central Bank being allotted at the weighted-average yield (price for re-opened securities) of the successful bids of other market participants to ensure fairness and market transparency. The maximum allotment limit for the Central Bank is currently capped at 10% of the total issuance size.

Reopenings

To improve liquidity, existing government issues are reopened. Reopening is the offering of new securities with the same terms and conditions as an existing issue. This will also increase the size of an outstanding issue. A reopened bond has the same maturity date, security identifier, stock code and coupon rate as the original security. The only difference is that they have a different issue date and usually, a different purchase price based on current market yields.

For Malaysian Government Securities (MGS), similar to new issues, reopening announcements are made via the Fully Automated System for Tendering (FAST) through the auction calendar. Generally, applications for purchase of a reopened issue follow the same procedure as a new issue. Reopening is done either through tender or private placement. Tendering is based on price specified to 3 decimal places (coupon already known). Proceeds paid for successful bids will include accrued interest.

Private Placement

Private placement occurs when a company makes an offering of securities or raise capital not to the public, but directly to an individual or a small group of investors.The Securities Commission (SC) has issued a Guideline on Private Placement for Private Debt Securities (PDS) on 3 September 2001.

Book Building

Book building is the process of generating a book of investors demand for corporate bond offering for an efficient price discovery. Usually, the issuer appoints a major bank to act as a book runner.

During the fixed period of time for which the subscription is open, the book runner collects bids from investors at various prices. The process aims at tapping both wholesale and retail investors. The final issue price is not determined until the end of the process when the book has closed. After the close of the book building period, the book runner evaluates the collected bids on the basis of certain evaluation criteria and sets the final issue price.