While a clear consensus on the best way to capture these risks has yet to fully emerge, these are very active areas of risk modeling at banks, and this is clearly a frontier area in both the regulatory and consensus economic capital regimes. In this regard, an important question to ask is how well the current capital frameworks capture the possibility of extreme events, those far in the “tail” of the distribution. Stress testing can play an important role in addressing these concerns. Stress tests should allow institutions to assess likely losses under extreme market events, those that happen too rarely to be captured under traditional value-at-risk measures, but that could cause very significant losses to the institution should they occur. Institutions have long engaged in this kind of analysis for internal management purposes. Now, however, those at the forefront of risk management are assessing the adequacy of their value-at-risk results against stress losses and finding ways of integrating the results of stress testing into their capital frameworks. Indeed, an important aspect of our supervisory process includes critically assessing stress-testing regimes. More rigorous and comprehensive stress testing of large shocks across multiple markets, geographic regions and business lines is vital, particularly for systemically important institutions. In this context, we need to see more attention paid to risks to market liquidity, and the effects on market liquidity that could result from the exit of a major dealer.

The marketplace has now been liberalised to allow for multilateral financial institutions, multinational and national corporations from other jurisdictions to issue both ringgit and nonringgit denominated sukuk in our sukuk market with increasing foreign investor participation in such issuances The sukuk market in Malaysia has seen wide ranging innovative structures and a greater diversity in the type and maturity of the sukuk. A landmark issuance is the $ million exchangeable sukuk Musyarakah in 2006 by Khazanah, the government’s investment corporation for the purpose of selling a stake in Telekom Malaysia. It marked the first issuance of its kind, incorporating full convertibility features common to conventional equitylinked transactions. A further notable issuance was the pioneering retail exchange-traded sukuk to raise funds for a transportation project that allowed retail investors the opportunity to have direct access to the sukuk and thus a stake in a massive infrastructure development in the country, therefore broadening the range of low-risk investment products available to such investors. In terms of maturity, the ringgit sukuk market has seen issuances of maturities to 30 years which were well received by the financial market. Regular sukuk issuances with different maturities by the Malaysian government has also created a benchmark yield curve for market reference, of which is complimented by the establishment of a number of indices for non-ringgit and ringgit denominated sukuk that serve as benchmarks to track the performance of sukuk. These initiatives have progressively contributed towards creating a vibrant secondary sukuk market in Malaysia, with increased depth and liquidity.