KUALA LUMPUR (March 20): The Securities Commission Malaysia (SC) is collaborating with Khazanah Nasional Bhd to introduce the tokenisation of bonds and sukuk this year, a move aimed at broadening retail participation in Malaysia’s capital market.

SC executive chairman Datuk Mohammad Faiz Azmi said the initiative seeks to make bonds more accessible to retail investors, addressing the current limitation where only sophisticated investors can participate in certain bond issuances.

"One of the things that we will be announcing later this year is we're doing a kind of an experiment with Khazanah, to see how we can tokenise bonds. And the logic is, if you tokenise a bond, you don't have to buy the whole bond, you can just buy a percentage of it," he said during a press conference on Thursday in conjunction with the release of SC's Annual Report 2024.

"And the idea behind that is, then maybe we can do away with the sophisticated investor requirement," Faiz added.

This initiative will allow SC and Khazanah to assess key functionalities such as smart contracts and custodial arrangements while evaluating the benefits and risks of blockchain-based securities.

At present, corporate bonds in Malaysia are predominantly issued to sophisticated investors.

According to the Capital Markets and Services Act 2007, sophisticated investors include high-net-worth individuals with RM3 million in net assets, or RM1 million in investments, companies with RM10 million in net assets, and institutional investors such as banks, pension funds and insurance companies.

In 2012, the SC launched the Malaysian retail bonds and sukuk framework to provide retail investors direct access to invest in bonds and sukuk.

Under this framework, retail bonds and sukuk may be issued by certain eligible issuers and traded either on Bursa Malaysia or over-the-counter (OTC) via appointed banks.

Bonds that are traded on Bursa Malaysia are usually traded in a minimum board lot size of 10 units per lot. Given the principal price of RM100 per unit, each board lot will cost RM1,000, excluding transaction costs.

The SC Annual Report 2024 highlighted that blockchain technology offers benefits such as programmability, transparency and accessibility, leading to a global push for tokenisation.  

The report noted that the SC is currently developing regulatory guidance to assist intermediaries in understanding and managing risks associated with tokenised securities.

However, Faiz acknowledged that the pace of tokenisation depends on regulatory considerations, particularly from Bank Negara Malaysia.

“There are a number of thought processes in that whole digital asset space, tokenisation is certainly on the agenda. But the pace of it depends also on how the central bank looks at it,” he said.

Despite this, Faiz expressed optimism, citing ongoing discussions within the government to advance digital asset adoption.

“The good thing is, there's a lot of conversations going on in the government. I'll let the government announce the plans when they finally come out, but they do want to move the needle. And we, at SC, are more than happy to support that,” he added.

For more SC 2024 Annual Report stories, click here.