3 September 1998
All Treasury Managers,
NOTES OF MEETING ON SETTLEMENT OF MALAYSIAN RINGGIT (MYR) DEALS
Following the announcement of exchange controls in Malaysia on 1st Sep 98, the Singapore Foreign Exchange Market Committee held a meeting with market participants on this matter. As a follow-up, a meeting was held on 2nd Sep 98 to discuss settlement of outstanding MYR transactions. The list of banks represented is in Appendix 2.
The meeting noted that the market for MYR had been severely disrupted by the recently announced measures, giving rise to potential risk exposures. Market participants generally agreed that the following guidelines could be adopted as recommended practice for closing outstanding MYR transactions:
Banks should close-out MYR-related transactions with counterparties by netting all outstanding trades and settling the difference in US$.
It was noted that the freely traded market for MYR ceased as of approximately 10.30am, 1st Sep 98. As such it is proposed that the representative rate prevailing at that time be used as the guideline for bilateral settlement. For this purpose, a spot US$/MYR rate of 4.00, a benchmark yield curve, an option volatility structure and other technical matters listed in Appendix 1 is a fair and equitable basis for valuing future payments with a view towards determining discounted future cash flows.
Close-out settlement should be effected as soon as possible and no later than 9th Sep 98.
All affected parties should exert their best efforts to reach an appropriate close-out arrangement. A practical date for making the net payment would be.
8th Sep 98.
VICTOR LIEW CHAIRMAN