Malaysia's offshore island of Labuan, which was designated as an international offshore finance centre in 1990, has announced a major new initiative as part of its development. In October it will launch the Labuan International Financial Exchange (LFX), an offshore exchange wholly owned by the Kuala Lumpur Stock Exchange. Seen as one of the the key components in promoting Labuan as an offshore financial centre, the exchange is expected to increase the success of Labuan, which has so far been limited compared to other regional offshore jurisdictions such as Hong Kong or Singapore.
The LFX will focus on the listing and trading of financial instruments including equities, investment funds, debt instruments, insurance-related instruments and those tailor-made for investors and issuers. Malaysia's two-year-old capital controls will not affect it as dealings will be carried out in US dollars. A statement from the LFX said: 'There will be no restriction on foreign investors holding securities listed on LFX as it is envisaged that the issuers will most probably be from various countries.'
Malaysia imposed capital controls and fixed its ringgit currency at 3.8 to the US dollar in September 1998 to stem the outflow of short-term capital in wake of the Asian economic crisis. In October 1999, Bank Negara allowed offshore banks limited access to the ringgit loan market. Banking operations in Labuan are free from capital controls.
LFX will have no restrictions on the type of financial instruments and no pre-determined minimum quantity for listing. Also, there is no requirement for participants to have a physical presence in Labuan. Trading will be done on its electronic bulletin board and trading agents will place their interests to buy or sell on the board and conduct their own negotiations.
Labuan is making a concerted effort to join the ranks of the more favoured, established offshore jurisdictions. There are currently 61 banks in Labuan, including 52 foreign-owned ones, but the number of companies incorporated or registered in Labuan stood at 2,266 in 1999, well short of the more than 100,000 companies in the Caribbean, according to the Labuan Financial Services Offshore Authority. Labuan has been spurred on to launch the LFX exchange by a recent announcement from neighbouring Brunei that it is setting up an international offshore financial centre of its own.
Chairman of the LFX Dato’ Mohd Azlan Hashim said the development of the LFX has been planned to be progressively competitive: 'As an offshore exchange that seeks to meet the requirements of the international clientele, LFX is now ready to accept licensing applications for listing sponsors and applications for the listing of financial instruments. This will provide for a stable, steady beginning and sustained growth for the operations of LFX.'
Further details of the launch of LFX, for which a precise date has not yet been set, can be found on the LFX website at www.lfx.com.my. Information on the website includes its rules,organisational and regulatory structure. LFX rules include the criteria and procedures for the listing of financial instruments and the licensing of listing sponsors and trading agents.
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