I envisage the FMC and the industry to further collaborate and come up with the new strategies and ideas to deepen and support the development of our onshore market. Beyond trade or real sector activities, we should look at financial investments, in particular the non-resident investors in our bond market. We have 33.7% of our Government bond market held by such investors. There are opportunities in this domain. 4/5  BIS central bankers' speeches  Where are they hedging their foreign exchange exposures? What product can the industry offer for them to hedge onshore? Given these obvious opportunities, we need to develop solutions that will benefit the industry as a whole. The significant overseas investments by residents and foreign currency exposures arising from trade activities create a need for the domestic hedging market to be further deepened. In 2015, FX market transactions volume reached a staggering USD2.52 trillion, yet currency derivatives such as FX forwards and options only made up 5 and 1 percent of the total volume, respectively. Similar concerns also exist for the bond market. Both government and corporate bonds are still primarily held by residents, and we have one of the largest corporate bond markets in the region. Yet, this does not translate into the development of active hedging market activities. Credit derivatives made up less than 1 percent of ringgit derivatives volume in 2015. This prompts several questions. Are our investors able to hedge effectively or efficiently manage the exposures of their portfolios?

For the ringgit exchange rate market, the past two years have been uniquely challenging. At the end of 2014, the situation appeared rather benign. The ringgit was stable, market liquidity was good, trading activity was healthy with market volumes averaging USD11.8 billion daily while the volume for USD/MYR pair averaged USD8.3 billion in 2014. The subsequent period however, precipitated by the weakening external conditions, falling oil prices and domestic uncertainties have laid bare these notions. Volume and liquidity declined, bid-offer spreads widened and at times, there were one-way markets which exacerbated any movements. Given these developments, 2015 was a year where our actions were primarily geared towards stabilizing the markets. While this was clearly achieved, it was not without cost; a reduction in foreign exchange reserves, a markedly less liquid and volatile foreign exchange market, and a weaker currency. In the midst of this, an important observation that became increasingly evident is the continued vulnerability of our markets to the arbitrary and unpredictable devices of the offshore markets. Adverse conditions brought on by the NDF market Activities in the offshore market, in particular the ringgit non-deliverable forward (NDF) market, had brought on observable adverse impacts to the onshore market. To our disappointment, onshore players had become followers rather than leaders in determining domestic market rates. Consequently, taking the lead from the NDF market, the ringgit exchange rate has been quite volatile since last year, peaking at 23.1% for its 1-month historical volatility and is the highest among regional currencies for this year.