Money Market Products
At Hong Leong Bank, we make your money work for you, providing money market instruments in conducting your investments and business in a highly competitive banking environment.
Our range of products include:
Negotiable Instruments of Deposit (NID)
Negotiable Instrument of Deposit (NID) is an instrument issued by a banking institution certifying that a certain sum in MYR or Foreign Currency has been deposited with the issuing bank for a certain tenor at a specified rate of interest (coupon rate may be fixed, floating or zero).
WHAT IS A NEGOTIABLE INSTRUMENT OF DEPOSIT (NID)?
- NID is deposit document issued by the Bank to a customer certifying that a certain amount has been deposited with the Bank at a specific rate and for a specific tenor (i.e. with specific maturity date).
- Unlike Fixed Deposits (FDs), NID is negotiable.
This basically means that it can be sold before its maturity date.
If the customer needs to realise cash before the NID maturity, he has to sell the NID.
However, the NID cannot be withdrawn prematurely like in FDs.
- Tenor available is between 1 month - 10 years.
Tenor may also be fixed in odd number of days e.g. 105 days.
- Amount must be placed in multiple of RM50,000 subject to a minimum deposit of RM100,000 per deposit.
Minimum denomination is RM100,000 and maximum denomination is RM10 million per certificate.
- NID rate is generally influenced by interbank rates and may be higher or lower than the bank's FD rates.
- However, for amounts that are below RM500,000, the rates are about the bank's FD rates.
Like STCP, larger amounts normally have a higher possibility of attracting better rates.
- Interest on NID is based on simple interest formula like STCP:
Interest = (PRINCIPAL x RATE x NO. OF DAYS) / 36500
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Short Term Corporate Placement (STCP)
WHAT IS A SHORT TERM CORPORATE PLACEMENT (STCP)?
STCP provides an alternative investment avenue for customers to place their excess funds with HLBB at a more flexible tenure as compared to fixed deposit.
- STCP rates are influenced by the amount placed i.e. where larger amounts normally command a better rate.
- Funds are placed for a fixed tenure and rate agreed upfront, which will be remunerated at maturity.
- The minimum period of the STCP placement is overnight while the maximum tenure will depend on the funding positions of HLBB.
- Interest rates for STCP placements are based on the interbank rate for a similar period of placement.
- The customer can call the Money Market Dealer direct to conclude a STCP deal or alternatively, the customer can also call the branch officer.
The customer would need to inform the dealer the amount, branch where account is maintained, STCP period, etc.
- Interest paid is based on simple interest formula:
Interest = (PRINCIPAL x RATE x NO. OF DAYS) / 36500
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Bankers' Acceptance (BA)
BA is a Bill of Exchange drawn on a Bank with a specific maturity date to finance a customer for a trade transaction.
It is a negotiable instrument, which may be sold to investors.
This is a trade financing facility available to buyers / importers and sellers / exporters which provides a competitive source of working capital that offers flexibility and a complement to the other banking facilities as well as an alternate form of short-term investment for the investor.
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Fixed Income: Government Bonds/Private Debt Securities
Fixed income securities are IOU where the issuer (borrower of funds) contracts to pay the owner of the bond (the lender of the funds), the face value of the bond on a definite future date (maturity) and pay interest (coupon) at specified dates at regular intervals (usually semi-annually).
Sophisticated individual investors (as defined under Schedule 2 & 3 of SCA 1993) may invest in Government Bonds/Private Debt Securities as an Alternate Investment subject to terms of offer.
Tax Implications: No withholding tax & tax exempt on coupon payments to non-resident companies and individual investors.
WHAT ARE THEY?
- Fixed income securities are assets that generate a stable income for the investor over the security's lifespan.
Nowhere is this term more appropriate than in bonds.
Simply defined, a bond is a long-term IOU where the issuer (borrower of funds) contracts to pay the owner of the bond (the lender of funds), the face value of the bond on a definite future date, and to pay interest at specified dates, and at regular intervals (usually semi-annually).
There are also bonds that do not carry a coupon.
In this case, the bond will be sold at a discount (below the par price of 100).
- There are other types of instruments that fall under the term of fixed income securities.
These other instruments need not be of a long-term nature and include short-term discount instruments such as Treasury bills.
- Note that fixed income instruments come in a variety of maturities, ranging from as little as 1 month to 10 years or longer.
Instruments that have maturities of 1 year or less are usually discount instruments.
- Discount instruments are instruments where the buyer (lender of funds) pays an amount less than the face value of the paper, and gets the face value upon maturity.
For example, A buys RM1 million of a 1-month Treasury bill at a yield of 3.00%.
A will have to only pay RM997,534.25 for the bill upon purchase.
Upon maturity of the bill, A will get RM1 million.
- All government, semi-government, and certain corporate debt securities are scripless.
This means that the initial step for any potential investor to take is to open a Fixed Income Trading account and a Scripless Securities Trading System (SSTS)* account with Hong Leong Bank Berhad.
When the account is opened, the investor can conduct trades through that particular SSTS account.
- The SSTS account in any Authorised Depository Institution (ADI)** is linked to the RENTAS funds transfer system.
There is little fear of non-payment or failure of delivery as securities in the SSTS account can only be moved or payment can only be made if and only if there is a matching transaction from another institution.
For example, B maintains an SSTS account with Hong Leong Bank and buys a bond from Maybank.
B has sufficient funds in his account with Hong Leong Bank and is awaiting for Maybank to deliver the bond.
B's funds will remain with Hong Leong Bank until Maybank sends over a confirmation to Hong Leong Bank to say that such a transaction has been made and is valid.
When Hong Leong Bank confirms the transaction, a simultaneous exchange of funds and securities will take place.
- Trades in fixed income securities are encouraged to be in amounts greater than RM100,000.00, as larger amounts tend to garner better prices in the market.
Note that the standard amount in the interbank market is RM5 million.
Hence, odd amounts are usually unable to command the best price in the market due to their illiquidity.
- You can ask for a price from Hong Leong Bank Berhad, but there are also 9 other appointed market-makers (also known as Principal Dealers) in the market.
While these Principal Dealers are only obliged to quote prices for certain selected issues, most (if not all) will oblige to quote retail prices for customers.
- To buy and sell securities, you can call the Fixed Income Dealer at Hong Leong Bank directly or alternatively, the customer can also call the branch officer or Priority Banking officer for current rates.
You would need to inform the dealer of certain particulars such as the branch where the account is maintained, that is, the ADI where the SSTS account is maintained, or the source of the funds used to purchase the bond, and the destination of the bonds.
- Non-resident persons are NOT subject to withholding tax if the interest they receive from a bond is issued by the Federal Government, public companies listed on the Kuala Lumpur Stock Exchange, or if the bond is rated by the Rating Agency Malaysia Berhad or Malaysian Rating Corporation Berhad.
One exception to this exemption is if interest is received from the purchase of convertible loan stock.
In the case where a non-resident purchases a convertible loan stock, withholding tax will be charged as per norm.
- Corporate and individual residents are exempted from withholding tax for Islamic private debt securities.
* The Scripless Securities Trading System (SSTS) functions to effect and record the trading of scripless securities between participating members of the SSTS, or between these member institutions and Bank Negara Malaysia, as well as the associated settlement of payments.
- Bank Negara Malaysia, Code of Conduct and Market Practices for Scripless Trading in the Malaysian Securities Market, p.2.
** Authorised Depository Institutions (ADI) function to maintain the securities accounts of individual customers, withhold tax where applicable for beneficial holders, pay interest or dividends or redemption proceeds they receive to the beneficial owners, and in the case of Cagamas bonds, provide evidence of ownership to prove entitlement to voting rights. Bank Negara Malaysia, as the Authorised Depository for SSTS securities, has designated Principal Dealers and Approved Dealers to act as ADIs.
Note that Approved Dealers are financial institutions that have been authorised by the central bank to participate in the inter-bank market.
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