muhammad bin ibrahim : insights from the financial market in 2015, expectation and direction going forward opening speech by mr muhammad bin ibrahim, deputy governor of the central bank of malaysia ( bank negara malaysia ), at the annual dinner of persatuan pasaran kewangan malaysia ( ppkm ), kuala lumpur, 13 november 2015. * * * this annual dinner is an important event for it presents an opportunity for us and the market to reflect upon all the challenges in the financial market, and draw lessons as we move into the new operating year. the year 2015 has been a very interesting year for all of us here, industry players and regulators alike. during the year, we witnessed significant capital outflows as markets responded to the global economic developments. in particular, every commentary or data release hinting at policy normalization in the us was met with gyrations in financial markets. emerging currencies, felt the brunt of such volatility, especially commodity exporting countries given the significant decline in commodity and energy prices and moderation in growth for the china ’ s economy. for malaysia, we saw ringgit weakened as much as 18 %, while in the bond market, we saw relative stability even though yields went up by 30 to 50 bps given by the negative sentiment in the domestic and global markets. insights from the financial market in 2015 in the midst of all the global economic uncertainty and financial market volatility, i would like to highlight some observations and comments. our currency, the ringgit, has been subjected of market volatility throughout this episode of global economic uncertainty. while most emerging markets currencies depreciated following the reversal of capital flows, the extent of ringgit weakness has gone beyond fundamentals and rational thinking. while market liquidity remains sufficient, on certain days, fx spreads have widened to 100 pips in the interbank market, and led to spikes in the movements of the ringgit exchange rate. market volatility has almost doubled from around 8 % to 14 – 15 %. i believe that the recent adverse market conditions with thin liquidity in the fx market have been exacerbated by irrational market behavior and risk aversion. in the current market environment, our own analysis has revealed that the higher interbank volume and the higher market volatility were due to this risk aversion. a small client ’ s order gets passed around among interbank players like a “ hot potato ”, and the exchange rates move

and, this brings me to a third point, we need to enhance market participant ’ s professional qualification, knowledge and skill set. financial market is dynamic and evolving, and players need to keep abreast of both domestic and global developments. there are ample financial market courses and programmes offered here in kuala lumpur, however majority of these program are still at entry level courses. ppkm together with the asian institute of chartered bankers will cooperate in the future to develop a series of high quality, advanced level financial market forums and seminars, thus creating a platform to expand network, develop expertise and to advance the malaysian financial market community to another level of professional and technical excellence. fourth, technology has become a crucial enabler in the financial industry as it continues to provide benefits by reducing financial transaction cost and enhancing trade execution efficiency. we need to embrace new technology, such as electronic platform. technology also greatly facilitates market surveillance and transparency by offering real - time information. this is particularly critical in a fast moving market, where delay in information mean loss of opportunities for banks, and delay in taking action to stabilise market. the need for real - time information in a fast moving market is urgent. for instance, trades that are still being concluded through traditional voice broking and conversational dealing screens are already obsolete in developed markets. technological advancement requires behavioral change as we move forward, financial market participants who rely on the traditional ways for dealing and communicating, they must relook at how they strategize their business to remain relevant in this era of rapid technological innovation. if we fail to change, the consequence is obvious, loss of business and demise of your business. bis central bankers ’ speeches fifth is the trend towards further regional integration. with the implementation on asean banking integration framework, regional markets will be more integrated. domestic financial institutions must be ready and becomes an active player in the asean economic integration process. on this issue bnm has started investing our international reserves in the regional financial markets, and increasingly a large portion of our reserve management business was being done with malaysian financial institutions. with this mandate, we hope that malaysian banks can play a greater role and expand their business by improving regional expertise and reach. central to this is capacity building as more regional business opportunities will be accessible once we have the capability to offer cross border financial products and services. in this regard, for strategic positioning and to ensure long - term competitiveness, malaysian banks operating across borders, should position themselves to be the first port of call for