Government Securities

The conventional securities and the Islamic securities differ only in its structure in terms of complying with Islamic principles in its issuance. Islamic Government securities are similar to conventional Government securities in terms of their effective cash flows, issuance structure, legal status in being a direct obligation of the Government, its holdings and nature of transaction as financial products.

 

Features	MGS (Conventional)	MTB (Conventional)	MGII (Islamic)	MITB (Islamic)
Issuer	Government of Malaysia
Tenor	3 to 30 years	Up to 12 months	3 to 30 years	Up to 12 months
Return payment (interest / profit)	Interest payment is semi-annual. Coupon rate is market-determined base on the weighted average successfull yield of the issue. Day count basis is Actual / Actual.	Bills are issued on discount basis	(Profit based MGII) Profit payment is semi-annual. Profit rate is market determined based on the weighted average successful yield of the issue. Day count basis is Actual / Actual.	Bills are issued on discount basis
Method of sale in primary market	Offered periodically via competitive multiple-price auction to Principal Dealers on yield basis for new issues and price basis on reopened basis, or issued through private placement to selected institutions	By competitive multiple-price auction on yield basis	Competitive multiple-price tenders are submitted by Islamic Principal Dealers on yield basis	By competitive multiple-price auction on yield basis
Redemption	Bonds are redeemed at par upon maturity.	Bills are redeemed at par upon maturity.	Bonds are redeemed at par upon maturity.	Bills are redeemed at par upon maturity.
Taxation	Bonds are exempted from withholding tax. No capital gain tax. Transfers of this stock are exempted from payment of Stamp Duty.
Secondary Market trading	Over-the-counter
Indices	Bloomberg Global Aggregate Index J.P. Morgan Government Bond Index – Emerging Markets (GBI-EM) FTSE World Government Bond Index (WGBI) Markit iBoxx Asian Local Bond Index (ALBI)		Bloomberg Global Aggregate Index J.P. Morgan Government Bond Index – Emerging Markets (GBI-EM)

 

Conventional

Bank Negara Monetary Notes (BNMN)

BNMN are securities issued by Bank Negara Malaysia replacing the existing Bank Negara Bills (BNB) for purposes of managing liquidity in the conventional financial market. The maturity of these issuances has been lengthened from one year to three years. New issuances of BNMN may be issued either on a discounted or a coupon-bearing basis depending on investors demand. Discount-based BNMN will be traded using the same market convention as the existing BNB and Malaysian Treasury Bills (MTB) while the coupon-based BNMN will adopt the market convention of Malaysian Government Securities (MGS).

 

Malaysian Treasury Bills (MTB)

MTB are short-term securities issued by the Government of Malaysia to raise short-term funds for Government's working capital. Bills are sold at discount through competitive auction, facilitated by Bank Negara Malaysia, with original maturities of 3-month, 6-month, and 1-year. The redemption will be made at par. MTB are issued on weekly basis and the auction will be held one day before the issue date. The successful bidders will be determined according to the most competitive yield offered. Normal auction day is Thursday and the result of successful bidders will be announced one day after. MTB are tradable on yield basis (discounted rate) based on bands of remaining tenure (e.g., Band 4= 68 to 91 days to maturity). The standard trading amount is RM5 million, and it is actively traded in the secondary market.

 

Malaysian Government Securities (MGS)

MGS are long-term bonds issued by the Government of Malaysia for financing developmental expenditure. MGS are fixed-rate coupon bearing bonds with bullet repayment of principal upon maturity while coupon payments are made semi-annually. Beginning December 2006, BNM has also introduced Callable MGS which provides the Government of Malaysia with the option to redeem the issue at par by giving an advance notice of five business days to the bond holders. Typically, the issue will be called in whole on specific coupon date(s), however these characteristics may vary in the future. Both MGS and MGS callable are issued via competitive auction by Bank Negara Malaysia on behalf of the Government. The successful bidders are determined according to the lowest yields offered and the coupon rate is fixed at the weighted average yield of successful bids.

An annual auction calendar which outlined the timing, tenure and issuance method (new issue/ re-opening) are pre-announced in the year-end for the subsequent year issuances to enhance market transparency and certainty. The actual issuance size is announced a week before the issuance date. The typical issuance size ranges from RM1 billion to RM4.5 billion depending on Government financing requirement. The Government is committed to continuously issue 3-year, 5-year, 7-year and 10-year MGS as benchmark securities as part of its efforts to develop the benchmark yield curve. The benchmark securities were often reopened to enlarge outstanding issue sizes in order to promote market liquidity. In addition, 15-year and 20-year MGS were also issued to lengthen the benchmark yield curve.

Secondary market for benchmark securities is liquid with average daily transaction volume varying from RM100 million to RM500 million. Standard transaction is RM10 million per lot. Trades are settled in two business days (T+2) and are quoted on a price basis to two decimal points. Neither stamp duty nor commissions are paid on the transfer of the securities. For transactions via money brokers, brokerage fee is payable.

 

Khazanah Bonds

Issued by Khazanah National Berhad (an investment holding arm of the Government of Malaysia) and guaranteed by the Government.

 

 

Islamic

Bank Negara Monetary Notes-i (BNMN-i)

BNMN-i are Islamic securities issued by Bank Negara Malaysia replacing the existing Bank Negara Negotiable Notes (BNNN) for purposes of managing liquidity in the Islamic financial market. The instruments will be issued using Islamic principles which are deemed acceptable to Shariah requirement. The maturity of these issuances has also been lengthened from one year to three years. New issuances of BNMN-i may be issued either on a discounted or a coupon-bearing basis depending on investors' demand. Discount-based BNMN-i will be traded using the same market convention as the existing BNNN and Malaysian Islamic Treasury Bills (MITB) while the profit-based BNMN-i will adopt the market convention of Malaysia Government Investment Issues (MGII).

Malaysian Islamic Treasury Bills (MITB)

MITB are short-term securities issued by the Government of Malaysia based on Islamic principles. MITB are usually issued on a weekly basis with original maturities of 1-year. MITB auctions are held one day before the issue date. The successful bidders will be determined according to the most competitive yield offered. Both conventional and Islamic institutions can buy and trade MITB .

The MITB are structured based on Murabahah concept. MITB based on Murabahah is essentially a certificate of indebtedness arising from a deferred mark-up sale transaction of an asset, such as commodity (mainly crude palm oil) which complies with Shariah principles. This new issuance under Murabahah contract will involve commodity transactions to create indebtedness between the sukuk issuer and the investors. Price is determined after profit element is imputed (discounting factor).MITB are tradable on yield basis (discounted rate) based on bands of remaining tenor (e.g., Band 4= 68 to 91 days to maturity). The standard trading amount is RM5 million, and it is actively traded based on Bai ad-Dayn (debt trading) principle in the secondary market.

Malaysian Government Investment Issue (MGII)

MGII is long-term non-interest-bearing Government securities based on Islamic principles issued by the Government of Malaysia for funding developmental expenditure. Similar with MGS, MGII is issued through competitive auction by Bank Negara Malaysia on behalf of the Government. The MGII issuance programme is pre-announced in the auction calendar with issuance size ranging from RM1 billion to RM3.5 billion and original maturities of 3-year, 7- year, 5-year and 10-year.

MGII is based on Murabahah concept. MGII based on Murabahah contract is essentially a certificate of indebtedness arising from a deferred mark-up sale transaction of an asset, such as commodity (mainly crude palm oil) which complies with Shariah principles. This new issuance under Murabahah contract will involve commodity transactions to create indebtedness between the sukuk issuer and the investors.