them in the credit risk premium while extending fund based and nonfund based credit facilities to them. banks have also been advised to consider stipulating a limit on unhedged position of corporates on the basis of policy approved by the board of the banks. absence of proper oversight over corporate ’ s business particularly their currency and interest rate risks has come to the fore now when we have witnessed a number of cases of corporates seeking restructuring / cdr, many of whom have got into difficulties due to foreign exchange related losses and excessive leverage, restructuring / defaults of overseas ecb / foreign currency convertible bonds ( fccb ) obligations, loss to the overseas branches of indian banks who have subscribed credit linked notes ( clns ) under the fccb issues. this does not, in any way, take away the primary responsibility of the corporates towards their own risk management system but the joint effort can go a long way towards preventing the kind of legal disputes which arose in the recent past. banks enter into derivative contracts for the purpose of hedging their own risks. they also play an important role as market makers in the derivatives markets to enable their customers to hedge their risks. client trades are typically covered on a back - to - back basis by banks in the inter - bank market, implying that the banks are hedged as far as market risks on client related transactions are concerned but they continue to hold on to the credit risks arising from the exposure to their clients. banks also typically maintain “ open ” positions as part of their trading book of their derivative portfolio and these positions engender market risks for the banks. the management of both risks is critical for banks, especially in the current environment of increased uncertainties and market volatility. banks also carry a significant amount of interest rate risk in their investment portfolio due to holding of the statutory liquidity ratio ( slr ) bonds and non - slr securities. managing risks in the investment portfolio, thus, acquires additional significance in an environment of increased volatility of interest rates notwithstanding the htm dispensation available to banks up to certain limits. typically, banks have been using a combination of duration targets and duration gap analysis for managing risks arising out of movements in interest rates. a series of stress tests are being conducted periodically by the reserve bank on the impact of interest rate shocks on the banking and trading books of banks. the results have been presented in the financial stability reports ( fsr ) published by the reserve bank

the islamic financial infrastructure in malaysia is reinforced by the supporting financial infrastructure, including the settlement and bond information system. to facilitate an efficient sukuk issuance process in malaysia, an mifc one - stop centre is being established as a single contact point for efficient delivery process to facilitate the issuance of sukuk. to further facilitate this process, there is no restriction on the ability to use international rating services, on the ability to hedge positions and on the ability to swap issuance proceeds into foreign currency. as part of our ongoing efforts to position malaysia as an attractive gateway for the issuance of sukuk, a number of legal and regulatory requirements are further customised to reduce the cost of sukuk issuance. profits and dividends received by non - resident investors from holding of ringgit and non - ringgit islamic instruments issued in malaysia are exempted from withholding tax. special purpose vehicles ( spv ) for islamic financing purposes via the islamic capital market are not subject to the administrative procedures under the income tax act 1967. in addition, companies that establish these spvs are given a tax deduction on the issuance cost of the islamic securities incurred by the spv. the issuance cost for all islamic securities approved by the securities commission are also eligible for tax deduction. finally, there is a stamp duty exemption for 10 years on instruments relating to islamic securities under the mifc. malaysia has also put in place an efficient platform for trading of bonds including the realtime electronic transfer of funds and securities system ( rentas ), fully automated system for issuance / tendering ( fast ), and bond information and dissemination system ( bids ) to provide post - trade transparency and market liquidity on par with developed markets. malaysia has a payment system link with hong kong monetary authority on us dollar settlements, while the malaysian government securities are clearable with clearstream. finally, of importance is a conducive environment for innovation and this has been put in place. in 2006, the malaysian market continued to generate innovative products with the launch of sukuk using mudharabah, musyarakah and ijarah. landmark issuance such as exchangeable sukuk musyarakah by khazanah nasional berhad, marked the world's first issue of its kind, incorporating full convertibility features common to conventional equitylinked transactions. an important enabling factor driving innovation is the availability of the pool of experienced talent. there are currently