FAQ 1. What is a Bond & Sukuk? Bonds or Sukuk are fixed income security or debt security issued by companies or governments (the issuer) to raise funds to meet their financing needs. A bond that is issued in compliance with Shariáh principles are known as Sukuk. 2. How do bonds or sukuk work? When investors buy bonds or sukuk and become bondholders or sukuk holders, they are entitled to receive periodic coupon or dividend payments on the principal amount lent to the issuer and upon maturity, the principal amount will be returned to the bond holder or sukuk holder. 3. What is the difference between bond/sukuk and shares? Bonds/Sukuk Bonds/Sukuk are Debt Securities Bonds/Sukuk holder - they are the owner of a bond asset and do not have rights to the ownership of the company Steady flow of payments known as coupon/dividends Generally less volatile Time limit or maturity period Trade size is 10 units Shares Stocks are Equity Securities Shareholder - an owner of the company Dividend payments based on the policy and performance of the company Impacted by market volatility and forces Do not have a maturity period, unless delisted Trade Size is 100 units 4. What are ETBS? Exchange Traded Bonds and Sukuk (ETBS) are fixed income securities, also known as bonds, that are listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds for their needs. Bonds can also be issued in compliance with Shari ah principles and these are known as Sukuk. Furthermore, market makers (brokers appointed by the issuer) are invited to participate in the trading of bonds to ensure there is sufficient liquidity for investors.
5. Why invest in ETBS? a. Flexibility and Ease of trading: ETBS are traded on Bursa Malaysia, making the buying and selling of ETBS as easy as trading in shares. b. Transparency: As ETBS are listed on the bourse, investors will have access to realtime prices and volumes, just like shares. This will enable investors to continuously monitor their investments and receive up-to-date information. c. Diversification: Investors can diversify their portfolio to include ETBS to complement their investments in other asset classes such as equities, derivatives, unit trusts, etc. d. Additional income stream: Investors can benefit from a steady income stream through regular coupon/dividend payments 6. What types of ETBS issuances will be offered on the exchange? The following are the types of ETBS that will be offered: a. ETBS issued by the Government of Malaysia b. ETBS with government guarantee c. ETBS issued by corporations 7. Bond Basics Issuer Term ETBS holder Principal Maturity Date Coupon/ Dividend Coupon/ Dividend Frequency Trustee Guarantor Description A company or government organisation that issues ETBS to investors in order to raise capital for its operations, expansion or other needs. The owner of a bond or sukuk asset The amount borrowed by the issuer or the amount lent by investors. Typically, this is the value returned to the bondholder / sukuk holder upon maturity. It is also known as nominal value, par value, redemption value or maturity value of a bond or sukuk. The date when the bond or sukuk issuer pays the principal amount to the holder. It is also known as redemption date. The interest amount the ETBS holder will receive above the principal amount. It is generally expressed as a percentage of the principal value. The frequency with which coupon/ dividend payments are made to the ETBS holder. An organisation that has been given fiduciary powers to ensure obligation of the ETBS contract is met between the ETBS issuer and the ETBS holder. They act in the interest of the ETBS holder. The government, commercial or holding company that will act as a guarantor for the ETBS issuer in case of a default
8. What are the different types of ETBS structures? Type Fixed-Rate Bonds/ Fixed Rate Sukuk Medium-Term Notes (MTN)/ Islamic Medium Term Notes (imtn) Floating-Rate Bonds / Floating Rate Sukuk Zero Coupon ETBS Convertible Bonds/ Convertible Sukuk Description ETBS that pay a fixed coupon/dividend payment at regular intervals until maturity. Fixed Rate ETBS are also known as Convention or Plain Vanilla. Medium-term ETBS (one to ten year notes) with a fixed coupon/dividend rate, issued on a continual basis. This is a popular type of bond/sukuk for issuers due to its flexibility, enabling issuers to raise funds as and when necessary. ETBS that pay a varying coupon/dividend payment at regular intervals until maturity. Floating Rate ETBS are also known as Floating Rate Notes (FRN). ETBS that do not pay interest but are initially sold at a discount compared to the redemption value. ETBS that may have fixed or floating interest rate payments. Bondholders / sukuk holders have the option to convert ETBS to a preset number of securities at a pre-determined time and price. 9. What is clean and dirty price? Dirty pricing is the basic price of the ETBS plus the accrued coupon/dividend amount since the last coupon/ dividend date; however, the clean price is the basic price of the ETBS without the accrued amount. On the coupon/dividend payment date the dirty price of the ETBS will be equivalent to the clean price of the ETBS. For example, assume the clean price of the ETBS is RM90. The ETBS is sold one month after a coupon payment (coupon payments are RM6 semiannually). To calculate the dirty price of the ETBS we calculate the accrued coupon/dividend amount first. Accrued coupon/dividend equals (1/6) months X RM6 = RM1. So, dirty price of ETBS = RM90 plus RM1 equals RM91. 10. What are the risks involved in ETBS investments? a. Credit risk: This risk arises if the bond/sukuk issuer is unable to pay the coupon/ dividend payment on coupon/ dividend date or the principal amount to the holder at maturity. Government ETBS are back by the central government, thus deemed to have a low credit risk. b. Market risk: This is the risk of price fluctuation and is impacted by the demand and supply in the market. c. Interest rate risk: Valuation of the ETBS may be affected by the changes in the direction of the interest rates e.g. if interest rate rises, ETBS prices will fall as investors may relocate their investment to capture rise in interest rates available in other instruments, for example, in bank deposit.
11. What are the trading hours for ETBS? ETBS will trade on Bursa Malaysia from Monday to Friday, except on public holidays and other market holidays. Trading Phases 1st Session Pre-Opening Opening and Continuous Trading Closing Lunch 2nd Session Pre-Opening Opening and Continuous Trading Pre-Closing Trading at Last Closing Normal Market and Odd Lot Market 8:30 am 9:00 am 12:30 pm 2:00 pm 2:30 pm 4:45 pm 4:50 pm 5:00 pm 12. How long does it take to clear and settle an ETBS transaction? ETBS trade just like stocks, subject to the same trading, payment and settlement rules (T + 3). 13. How will investors receive the coupon/dividend payment? Since it is a tradable instrument like shares, coupon/dividend payments will follow the current dividend payment setup for your trading account, namely either through e- Dividend or cheque from the issuer's paying agent. 14. What is the minimum board lot size that can be traded for an ETBS? The minimum board size for trading an ETBS is 10 units. Given the principal price of RM100.00 per unit, each board lot will cost RM1000, excluding transaction costs. 15. What does a credit rating for an ETBS tells me The credit rating is a financial indicator to potential investors of debt securities such as ETBS. These are assigned by credit rating agencies such as Rating Agency Malaysia (RAM) and Malaysia Rating Corporation Berhad (MARC) to have letter designations (such as "AAA", "B", "CC") which represent the credit risk* of a ETBS. ETBS ratings below "BBB"/"Baa" are considered to be below investment grade and are colloquially called junk bonds. For more information visit MARC and RAM website at: a. Rating Agency Malaysia (RAM) b. Malaysia Rating Corporation Berhad (MARC) *Refer to Credit Risks in above item 'What are the risks involved in ETBS investments'
16. What do I need in order to start trading in ETBS? You will need to visit your nearest participating organization (stock broking firm registered in Malaysia) to open a securities trading account and Bursa Central Depository System (CDS) account.