CHAPTER 1: 

OVERVIEW OF FINANCIAL MARKETS 
 Topic Outline
1.1 Definition
1.2 Types
1.3 The Malaysian Market Structure
 FINANCIAL SYSTEM
1. Financial institution
i. Banking System
ii. Non-Bank Financial Intermediaries
2. Financial Market
i. Money & Foreign Markets
ii. Capital Markets
iii. Derivatives Markets
iv. Offshore Market
 FINANCIAL SYSTEM

Financial 
System

Financial  Financial 
Institutions Markets

Non‐Bank  Money & 
Derivatives 
Banking System Financial  Foreign 
Markets
Intermediaries Markets

Offshore 
Capital Markets
Market
 FINANCIAL INSTITUTIONS
1. Banking System
i. BNM
ii. Banking Institutions
• Commercial Banks
• Islamic Banks
iii. Others
• Investment Bank
• Discount Houses
• Credit Guarantee Corporation
• Representative Office of Foreign Banks
• Offshore Banks in Labuan IBFC
2. Financial Institution (Non Bank Financial
Intermediaries)
i. Provident and Pension Funds
ii. Insurance Companies
iii. Development Financial Institution
iv. Savings Institutions
• National Savings Bank
• Co-operative Societies
v. Others
 FINANCIAL INSTITUTIONS
FINANCIAL INSTITUTIONS  (NON BANK FINANCIAL INSTITUTION)

NBFI

Development 
Provident &  Insurance  Saving 
Finance 
Pension Funds Companies Institutions
Institutions

Pension Trust  Cooperative 
EPF SOCSO BSN
Funds Societies
STRUCTURE OF THE MALAYSIAN FINANCIAL 
MARKETS
Financial 
Markets

Money Market Capital Market

Marketable  Foreign  Derivative 

Cash Market
Securities Exchange Market

Short Term  Foreign  Primary 

Futures
Instrument Currencies Market

Secondary 
Options
Market
 TYPES OF FINANCIAL MARKETS
Money Market

• It deals with financial instruments which have a maturity

of less than one calendar year.
• Also known as marketable securities. Example: T-Bills,
BAs, NCDs & Commercial Paper.
Capital Market

• It deals with financial instruments which have a maturity

of more than one calendar year.
• These instruments also known as fixed-income
securities (fixed interest payment over a specified
number of years and principal repayment at maturity).
Example: Term Loan, public/private debt securities.
• Investment with no maturity (incl. of ordinary shares
quoted on the stock exchange) are also traded in the
Capital Market (but these shares do not fix any payment
of dividend and movement of current prices)
Debt Market

• Also known as fixed income market.

• It deals with fixed payments of interest and
principal.
• Can be categorized further into short term (i.e:
notes payables such as LC) and long term debt
market (i.e: long term loan provided by fin.
Institutions to the companies or bonds issued
by corporate or government institutions)
Equity Market

• Also known as variable-income market.

• It deals with variable payments of dividend and
changes share prices.
• Can be categorized as direct investment (direct
invest in stock market) and indirect investment
(through fund managers).
TYPES OF FINANCIAL MARKETS
Cash Market

• Also known as spot market or physical market

or underlying market.
• Refers to the spot transactions which requires
immediate delivery of goods (physical/financial
asset) by a seller and payment by a buyer.
• Physical refers to the physical place where a
seller meets a buyer to exchange goods for
payment.
 TYPES OF FINANCIAL MARKETS
Derivatives Market

• Also known as futures market.

• Refers to the transaction which does not requires
immediate delivery by seller and payment by buyer.
• By trading procedures, buyer and seller can delay a
delivery of goods and cash at a later date (expiry date),
through derivative market (forward and futures) market
• In this kind of market, buyer and seller do not have to
meet at a physical place and also without spot
transaction
 TYPES OF FINANCIAL MARKETS
Primary Market

• Involves transactions of assets between an issuing

institutions and all prospective buyers.
• Any proceed from selling the financial instruments will go
to an issuer in the form of new capital => it is a platform
for an institution to tap additional funding from the
investing public.
• An issuer has to engage an intermediary
(investment/merchant bank) for a stipulated fee.
• Investors can buy direct from issuing company at an
issue price (after ballot process at issuing house)
** IPO Process
 TYPES OF FINANCIAL MARKETS
Secondary Market

• Involves the trading of assets between current owners

and potential buyers.
• Any proceed from selling the financial instrument will go
to the pocket of the seller (either capital gain or loss).
• Also known as the stock market (trading of shares
between existing & potential shareholders without
involvement of an issuing company) – which involves
BMSB & ACE MARKET.
• It facilitates trading of financial assets in the cash market
(BMSB , ACE MARKET) as well as the derivative market
(BMDB)
 TYPES OF FINANCIAL MARKETS
Regulated Market

• Is defined as a market for organized trading of

assets that is regulated by an authorised
government agency.
• Example of regulatory bodies in Malaysia:
a) BNM (regulates the operations of all financial
institutions)
b) SC (regulates the operation of the securities
and derivatives exchange)
 TYPES OF FINANCIAL MARKETS
Unregulated Market
• Is defined as a market for unorganized trading that is
tailored to the needs of buyers & sellers.
• There is a private agreement based on negotiations and
consent between 2 contracting parties.
• Commonly referred to as OTC market. It deals outside
the regulated exchanges, not regulated by any official
government agency,, transactions are closed-out over
direct negotiation between buyers and sellers, and tailor-
made contract sizes as opposed to standardized
transaction of regulated markets.