Malaysia and Indonesia are growth areas for FX: Confidence in local banks is low, and great for Western brokerages

Malaysia’s finance minister looks back over 30 years to a period at which he refers to Bank Negra’s FX trading abilities as “rubbish.” This is very good news for overseas firms wanting to penetrate the market, here is why.


Indonesia. A vast country in South East Asia with over 255 million inhabitants, all of whom speak the same language and with a remarkably low median age of 28 years.

The country’s population is rapidly increasing, largely due to a very large percentage of the nation’s citizens being under 35 years old, and is expected to reach 269 million by 2020 and 321 million by 2050.

Malaysia, a neighboring nation with much alignment to other Asia Pacific countries, a very modern capital city and 33 million people, with a vast percentage of its population being less than 35 years old and a burgeoning economy which has led it to become a great focus for entry by overseas companies across all sectors.

Whilst mainland China is the golden goose when it comes to forging high quality commercial relationships and elevating a company to the large and otherwise unthinkable levels of revenue via highly efficient and well organized networks of IBs, Malaysia and Indonesia are regions of great interest to many retail FX firms.

No federal restrictions on internet or cross border payment activities exist in both nations, and whilst neither can even hold a candle to the futuristic business landscape of China, they are areas in which retail FX firms can look toward a good potential client base.

An area of specific interest is that Malaysia’s own government has absolutely no faith whatsoever in its own banking system when it comes to interbank FX dealing.

Today, Former Finance Minister Tun Daim Zainuddin told the Royal Commission of Inquiry (RCI) investigating Bank Negara Malaysia’s (BNM) FX losses in the 1980s and 1990s that he had never spoken to then-Prime Minister Tun Dr Mahathir Mohamad about the central bank’s FX dealings.

Mr Daim publicly called Bank Negra’s FX trading ability “rubbish” and that had he known about it, he would have intervened and curtailed it.

The mere fact that FX transactions that took place between 27 and 30 years ago are currently under the microscope speaks volumes, and should be enough to ensure that Malaysia’s brokerages, both established and startup, should be looking to take liquidity from Western firms, and that its direct retail client base should be a very good target audience for Australian and British brokers with licenses in highly reputable jurisdictions.

Appearing as the 23rd witness in the proceedings today, Mr Daim stated that then-BNM governor, the late Tan Sri Jaffar Hussein, had never discussed with him in detail about forex dealings by BNM’s trading arm, however, he acknowledged that BNM became active in FX trading from 1988 onwards.

Daim, who served as Finance Minister between 1984 and 1991, arrived at the Palace of Justice at 9.45am before taking the witness stand at 10.20am.

Speaking to reporters after taking the stand before the Royal Commission of Inquiry, Mr Daim said it was not the central bank’s role to trade in forex.

Very outspoken condemnation followed, with Mr Daim stating “In hindsight, I think it’s damn stupid. Forex trading is a very volatile business and those in charge of the reserves should be more careful in taking care of it. BNM’s role is to protect our currency and reserves,” he told the commission.

Antics such as this, especially when aired in the public domain, are anathema to interbank business in London, the world’s center for Tier 1 liquidity, and indeed this is something that should be capitalized on by brokerages in respected jurisdictions.

Looking at neighboring Indonesia, prominent companies from many regions have garnered success there, largely for similar reasons.

ADS Securities, one of Asia’s most prominent firms which provides retail and institutional services, spoke recently to FinanceFeeds to explain the considerations regarding liquidity provision, maintaining relationships with the local banks in the region and where to locate offices in order to approach the market successfully.

Mathieu Ghanem, Head of Sales APAC & Deputy General Manager at ADS Securities today explained to FinanceFeeds “There are 2 distinct markets for an offshore broker like us in Indonesia but actually a lot of restrictions for both liquidity and trading lines provision that makes it difficult for ADS-like brokers to penetrate, those being the institutional and the retail market.”

The institutional market has 2 sub-categories

“The first sub-category is the banking market” said Mr. Ghanem. “This market for an offshore player like us has several restrictions. For example, the onshore Rupiah business can only be traded by onshore banks since the new regulation from the Bank of Indonesia has taken place – local entities can only trade with other onshore entities. Other barriers such as poor internet infrastructure in Indonesia makes it difficult for a E-broker like ADS to distribute non IDR liquidity electronically.”

“The only way for ADS to “tap into” Indonesia would be throughout the offshore NDF market which is mostly traded out of Singapore by a majority of foreign investors only; here both our PoP and NDF offering combine is gaining a lot of traction from hedge funds, family offices and ‎brokers” explained Mr. Ghanem.

“The second sub-category is the brokerage market” he said. “This market has become pretty regulated too and local brokerage houses can only obtain liquidity and trading lines via local and registered market makers. Often, the big players in Indonesia do posses both the brokerage house and the market making entity that are located onshore. To contract and make business with these entities if not located in Indonesia is close to impossible – in addition domestic houses have credit arrangements that no other offshore provider can match.”

Now on the retail market ‎side, which of course do not include any PoP solutions, several offshore brokers have been offering their services since few years now. The most aggressive of these brokers have been black listed by local authorities which had to deal with a lot of abuses – Mathieu Ghanem, Head of Sales APAC & Deputy General Manager at ADS Securities

In conclusion, Mr. Ghanem stated “De facto, regulators have advantaged local houses which leaves a smaller and different market share for offshore competitors: mostly the intermidiary business or IB business. It requires brokers to have full Indonesian Bahasa online support and material + all the other funding, rebate, emarketing and close door event services which as of today has not been the case at ADS Securities.”

FinanceFeeds today spoke to one of the pioneering firms which succeeded in the Indonesian market, FXOpen.

Denis Peganov, Business Development Director at FXOpen today explained to FinanceFeeds “Initially, clients in Indonesia wanted any broker with an easy procedure of account opening, a local office and the support of the Bahasa language.”

Denis Peganov, FXOpen

Mr. Peganov continued to explain “Now as so many different companies have entered Indonesia they want everything to be standardized, and all possible bonuses, therefore it makes life hard there at the moment.”

“I am pretty sure that a lot of brokers exclude Indonesia during their campaigns as most of the traffic that comes from there (small Clients) are useless as they generate zero money in terms of deposits or turn over” – Denis Peganov, Business Development Director, FXOpen.

“Another important point is regulation” continued Mr. Peganov. “At the moment there is no legal way to have an office in Indonesia without a license, and the local license restricts leverage to a maximum ratio of 1:200 which is not interesting for retail clients, therefore in the end there are huge amount of all kind of companies, not all of which are brokers, some are white labels, affiliats or IBs, as well as a certain amount of locally based companies which are usually owned by ex-IBs of foreign brokers, all of them have some very small share of Indonesian market, and each Indonesian client usually has numerous accounts with many different companies” concluded Mr. Peganov.

Adam Reynolds, CEO Asia Pacific at Saxo Bank explained today to FinanceFeeds “Saxo Bank Group sees Indonesia as a very strong opportunity over the coming years, and are partnering with local organisations to be able to provide multi-asset trading to Indonesian clients across a huge array of markets and asset classes.”

“Saxo Bank Group has Sinar Mas Group as a strategic investor, and will work with them and their financial arms to access a very broad range of Indonesian clients. We see this sort of partnership as providing the best in breed technology with local knowledge and relationships to ensure we grow critical mass across Indonesia” continued Mr. Reynolds.

Adam Reynolds, CEO APAC, Saxo Bank

“Indonesian clients need to be sure they are dealing with licensed legal entities across all the different asset classes for their own protection. Saxo Bank is a licensed European Bank, and Sinar Mas Group is licensed in Indonesia, so together we provide a strong regulatory framework for clients to access both domestic and international markets” Mr Reynolds concluded.

Nicolette Yuen at Blackwell Global in Singapore is an expert in conducting business in the South East Asian region. Today, she explained to FinanceFeeds “Localisation is key in setting up in South East Asian nations. There is no one-size-fits-all solution, even with your general working model with regards to marketing and educational activities.”

Ms. Yuen concluded “It is important to have someone who has full knowledge of how to communicate with the people on the ground. This applies in the same way for China. Even with the country’s heavy investment in digital infrastructure, the Chinese quick adoption of web technology, and its fast-growing urban middle class, localisation still plays a huge part in the success of brokers there.”

Education performs a major part of the FX brokerage landscape in Indonesia. There are firms such as Belajar Forex, which appears and positions itself as brokerage, but is actually an educational resource which professes to teach investors how to trade the FX markets. In essence, this is a form of affiliate site which attracts novice traders with online courses, and then directs them to an ‘Open a Real FX Account’ section at which point they open an account with affiliated brokerages.

Opinions vary with regard to FX educational resources in the West, with polarization between university-backed online trading courses that are quite clearly bona fide, and the nefarious attempts to relieve novice traders of their cash by those selling a dream, and some miraculous and very expensive trading software whilst referring delegates to market makers which subsequently split the losses when the inevitable zero appears on the MetaTrader 4 front end, however in Indonesia, holding seminars and addressing groups of traders is commonplace, and an accepted method of onboarding clients.

FinanceFeeds consulted Ben Cohen, COO at Traders Education for greater clarification on this. He explained “The Indonesian market is a fairly new territory for many new and established brokers who decided to approach this young yet eager to learn population. Most firms open call centers in India or Manila (Philippines), yet the strong brokers in Indonesia put their efforts in local entities, mostly educational schools, classes or even trading rooms. In regions which are relatively new in terms of trading the behavior is being learned by others, usually in closed venues based on educational experience.”

Recently, FinanceFeeds has become aware of many retail FX firms courting B2B and direct retail relationships in Malaysia and Indonesia, and with the endorsement of central government officials in the region of the local banks resembling that of a Bronx cheer, it would appear that a long future of Malaysian customers working with reputable overseas firms which have Tier 1 relationships in established interbank FX trading centers will prevail.

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