Zeti Akhtar Aziz: The development of the Malaysian bond market Remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launch of the Electronic Trading Platform by Bursa Malaysia, Kuala Lumpur, 29 April 2008. *  *  *  Let me first of all thank Bursa Malaysia for inviting me to say a few words on this occasion of the launch of the Electronic Trading Platform. This initiative marks another important advancement in the development of the Malaysian bond market. The Electronic Trading Platform will take over the function that was previously performed by the Bond Information and Dissemination System (BIDS). Bank Negara established BIDS ten years ago, in 1997 to provide market information on domestic debt securities. BIDS was developed as a centralized database that provided information on the terms of the issue, details of trade done and the relevant information on the various debt securities, to facilitate increased transparency and efficiency in the bond market. BIDS therefore aided the price discovery process thereby promoting secondary and primary activities in the bond market. BIDS was revolutionary in its time as authorities in other jurisdictions subsequently launched similar initiatives in their respective markets. This Electronic Trading Platform is a significant enhancement to the mechanism in the development of a more vibrant bond market. Indeed, this development is timely because the Malaysian bond market is now at the threshold of its next stage of development. Several factors have brought the development of the bond market to this threshold.

And finally, these developments have been continuously reinforced by the strengthening of the financial infrastructure, the settlement system, the legal and regulatory framework to ensure the robustness and vibrancy of the bond market. Malaysia has benefited immensely from the development of the bond markets. As an important source of financing, it contributes to the economic growth process. It also allows for more efficient mobilization and allocation of financial resources. With greater efficiency in the intermediation process, it reduces the cost of financing. It also allows for the increased diversification of risks both for issuers and investors. In addition, it enhances financial stability through potential diversification, increased transparency and greater market discipline. The development of the bond market also enhances the transmission mechanism  BIS Review 53/2008  1  of monetary policy. Finally, and most importantly, the more developed bond market has enhanced our resilience to the implications of increased volatility in the international financial markets. The Malaysian bond market has several distinguishing features. Firstly, it comprises both the conventional and Islamic bond market. Secondly, the secondary and repo market is now growing in significance. Turnover volume in the secondary market has been steadily increasing over the years marking the active participation in the bond market by investors. In 2007, total annual turnover volume increased by 46% to RM777 million. There is also an increased diversity of instruments being issued ranging from asset-backed bonds, bonds bearing features such as stepped-up coupons and "floaters" and pass-through ABS.