Kuala Lumpur, 23 July 2007: National deposit insurer, Perbadanan Insurans Deposit Malaysia (PIDM), is seeking public comments on its proposals to address issues relating to the enforceability of “close-out netting” provisions in the Akta Perbadanan Insurans Deposit Malaysia 2005 (PIDM Act).
In line with this initiative, PIDM has released, for public response, a consultation paper on Proposals to Help Achieve Confirmation of “Enforceability of Close-Out Netting Provisions under the PIDM Act”. This action follows PIDM’s discussions with the International Swaps and Derivatives Association Inc. (ISDA) on the enforceability of close-out netting provisions for derivatives transactions in Malaysia.
ISDA is a global financial trade association whose members include many major institutions that deal in privately negotiated or “over the counter” derivatives as well as businesses and governmental entities. ISDA has developed certain standard agreements (“ISDA agreements”) that may be used by counterparties entering into derivatives relationships.
The ISDA agreements set out the ongoing contractual relationship between the parties in a transaction and govern each transaction that they enter into. If a counterparty to an ISDA agreement defaults, the close-out netting provisions of the agreement provide that offsetting credit exposures between the two parties will be combined into a single net payment from one party to the other.
The consultation paper explains that, the PIDM Act, as it currentlystands, appear to qualify the enforceability of such close-out netting provisions under the ISDA agreements. As such, according to ISDA, members of ISDA that enter into derivatives transactions would not generally recognise the close-out netting provisions as being enforceable in Malaysia for regulatory capital purposes and this has implications on the development of the derivatives industry.
“We have been discussing with ISDA on ways to satisfactorily address this issue. The consultation paper suggests possible ways to achieve an appropriate balance between the importance of close-out netting for counterparties, and the need for a flexible resolution strategy for PIDM to address matters that are within our mandate,” said Jean Pierre Sabourin, Chief Executive Officer of PIDM.
The consultation paper is available on PIDM’s website (Click here to download). Interested parties, including the general public, member institutions and experts, are invited to submit written comments to PIDM on this consultation paper by 23 August 2007.
PIDM will collate all the comments received and publish its responses, including any amendments to the draft Regulations and draft Policy Statement, on its website. The draft Regulations will come into force after the normal legislative process.
“The issuance of the consultation paper is part of our ongoing efforts to promote transparency and is in line with PIDM’s established process to consult all stakeholders in our policy making process. In the past two months, we have issued four other consultation papers on the Differential Premium Systems (DPS) framework, Terms and Conditions of Membership, Provision of Information on Deposit Insurance and Criteria for Determining Insured Deposits,” Mr. Sabourin noted.
For more information about this press release, kindly contact :
S.Loganathan, General Manager, Communications and Public Affairs Division
(Tel : 03-2173 7455)
Zeti Zahariah Zainul, Manager, Communications and Public Affairs Division
(Tel : 03-2173 7457)
PIDM administers the Government-backed deposit insurance in Malaysia. We protect depositors – automatically – up to RM60,000 per depositor per member institution. For further information:
PIDM protects your deposits in the bank as well as your takaful and insurance benefits in the unlikely event of a failure of a member bank or a takaful operator / insurance company.