Labuan International Financial Exchange (LFX)

LFX, which was officially launched on 23 November 2000 by the Minister of Finance, Tun Daim Zainuddin, is a web based financial exchange that provides listing and trading facilities for a wide range of financial and non-financial products (as well as Islamic products). These include mutual funds, bonds, derivatives, insurance-linked products and intellectual properties.  Labuan International Financial Exchange Inc. Ltd, is a wholly owned subsidiary of Bursa Malaysia Berhad (Bursa)..

LFX was established to complement various offshore financial services currently available in Labuan. It is a full-fledged self-regulatory exchange.  As a market driven exchange, the LFX’s goal is to facilitate the influx and mobilisation of funds through the listing and trading of various securities and instruments. 

LFX is governed by its rules and regulations and the Labuan Offshore Securities Industry Act (losia) 1998.  As part of the new economy, LFX will capitalise on the Internet via the @ LFX system to cater for the electronic submission of licensing and listing applications as well as for disseminating information.  The operating website of LFX is www.lfx.com.my.

LFX is designed to cater for the needs of global companies and investors.  In particular, it is targeted to reach out to investment funds, debt instruments, and conventional securities available now, and has the flexibility to cater for new instruments that will be developed in the future. Participants of the LFX

As a full-fledged exchange, LFX offers both listing and trading facilities. Its emphasis will however be listing of financial instruments.  The function of depository cum custodian is outsource to qualified and suitable parties. Currently, Citibank Worldwide Securities Services is handling the functions.  Hence, there are abundant opportunities for offshore players in the LFX including to provide custodial, depository, clearing and trustee services, other than being Licenced as listing sponsors and trading agents.

• packaging of products for listing, subject to meeting the LFX's  listing criteria;
• underwriting and placement of instruments to be listed; and
• Post-listing obligations of the instruments listed.

Trading of instruments would be done via Licenced trading agents, which may include stockbroking companies as well as individuals experienced in trading of securities and financial instruments.   The roles of the trading agents will be to:

• conduct and execute trades;
• provide advice to investors; and
• ensure delivery and payment are made within the T+3  timeframe.

As at 31 December 2000, there were three listing sponsors and two trading agents Licenced by LFX.

Benefits of the LFX

LFX offers several benefits as follows:

• LFX is a one stop financial exchange that offer full services from the submission of application for listing to approval, listing, trading and settlement, of the securities and financial instruments listed;
• The Rules of the Exchange is designed to be liberal to cater for the listing of a variety of multi-currency securities and instruments.  However, as a self-regulatory organisation, it aims to strike a balance between commercial expediency and maintaining a fair and orderly market.  Market integrity and providing investor protection are paramount;
• LFX would maintain a customer focused and oriented environment without compromising on key aspects of quality, security, due diligence and corporate governance;
• All transactions conducted on LFX are not subjected to any selective capital control measures or exit levies;
• The extensive usage of multimedia and internet facilities will enhance accessibility, whilst ensuring its operations remain simple to function efficiently and cost effectively;
• Speedy approval as LFX undertakes to process and approve all Listing applications within three weeks, provided that all required documentation received is accurate and complete.  This is possible because decision making at the LFX is the sole responsibility of LFX; and
• Labuan as An Offshore centre does not attract any stamp duty and requires only minimal dealings with the statutory regulators.

Above all, it is pertinent to recognise that LFX is backed by Bursa, thus providing LFX with:

• reliable and proven infrastructure developed by Bursa;
• the expertise and experience of Bursa; and
• the necessary financial strength.

Opportunities at LFX

LFX can be a major exchange capitalising on its many advantages listed above, and thus, offering unlimited opportunities to global investors and companies. Malaysians can utilise LFX as a window to invest abroad and domestic institutions can ride on LFX to expand their international business activities or seek foreign funding through the listing of innovative products. A listing on the LFX would contribute to enhancing the liquidity of their investments for otherwise non-liquid investments.  The availability of a wide range of products and services will contribute to the overall efficiency of the Malaysian economy.

For countries in the Asia Pacific region, with either limited resources to set up an exchange or limited number of commercial enterprises to justify having an exchange, LFX, given its international accessibility, offers an efficient, cost effective access to the capital market.  Of course, this opportunity is not only confined to countries in the Asia Pacific region and is open to all developing countries such as those in Africa, and other parts of Asia that can effectively use LFX.

For international investors and companies world-wide, LFX offers an exchange facility that permits the trading of multi currency instruments, in an unrestricted fashion - unencumbered by any exchange or selective capital controls.

For issuers and advisors, the LFX offers a facilitative and consultative approach.  To assist and facilitate in meeting business requirements, products that will be allowed would be largely determined by issuers and their advisors.

Opportunities for Shariah based investment at the LFX

The potential for Shariah based investment instrument on the LFX is immense – for it has been estimated there is over USD800 billion of Islamic capital, invested currently in conventional market worldwide.  Whilst the establishment of the International Islamic Financial Market (IIFM) by 2001 in Labuan IOFC would be a significant and timely opportunity to match the surplus and requirement of funds among Islamic financial institutions. The LFX is ready to offer opportunities to enable greater flexibility in the mobilisation and application of Islamic funds.

LFX caters for a wide range of products and instruments based on Shariah principles, thus enabling the realisation of greater benefits from the launch of the IIFM.  When compared to LFX, there are very few exchanges that have devoted the commitment and resources to promote the listing and trading of Shariah based products.  It is indeed LFX’s intention to be one of the few, if not the only exchange, to actively promote Shariah based securities and financial products for the global Islamic capital requirements.

In conclusion, LFX will continue to be developed to be an efficient, cost effective and secure exchange for the benefit of all and will always be receptive to new ideas and instruments that the market requires. Through the listing and trading of various securities and financial instruments, LFX will act as a vehicle to attract more funds and financial service providers to Labuan.  In addition, being the only offshore exchange within the region, LFX would provide the impetus for Labuan to gain wider international recognition as an international offshore centre.