By Tommy Wong 

The digital currency industry in Malaysia received long-awaited clarity sought by many entrepreneurs and investors when on 15.1.2019 digital assets were finally recognized as securities under the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (“CMS Prescription Order”). In addition, the Securities Commission Malaysia (“Securities Commission”) issued the revised Guidelines on Recognized Markets (“Guidelines”) on 31.1.2019 for the facilitation of registration of digital asset exchange operators (“DAX Operators”) in Malaysia.

Registration as a Recognized Market Operator 

Under the Guidelines and section 34 of the Capital Markets and Services Act 2007 (“CMSA”), a legal entity seeking to operate as a DAX Operator is required to be registered as a Recognized Market Operator (“RMO”). Pursuant to Chapter 3 of the Guidelines, an applicant intending to register as an RMO must satisfy the Securities Commission on various criteria, including but not limited to the following:

  • The applicant will be able to operate an orderly, fair and transparent market in relation to the securities or derivatives that are traded through its platform;
  • The applicant will be able to carry out its obligations as set out in the Guidelines;
  • The information or document that is furnished by the applicant to the Securities Commission is not false or misleading nor does it contain any material omission;
  • The applicant is not in the course of being wound up or otherwise dissolved;
  • The applicant’s business model has a clear or unique value proposition or will contribute to the overall development of the capital market; and
  • The applicant has sufficient financial, human and other resources for the operation of the recognized market, at all times.

A DAX Operator is essentially an RMO operating an electronic platform which facilitates the trading of digital assets (“DAX Exchange”), such as digital currencies and digital tokens (“Digital Assets”). In addition to the non-exhaustive list of criteria above, there are other criteria to be satisfied for an RMO to operate as a DAX Operator in Malaysia, including but not limited to the following:

  • An applicant intending to operate as a DAX Operator must be a company incorporated in Malaysia with a minimum paid-up capital of Ringgit Malaysia Five Million (RM5,000,000.00);
  • In the event the applicant is a public company, a minimum of one member of the board must be an independent director;
  • The applicant must operate an orderly, fair and transparent market in relation to the Digital Assets, securities and/or derivatives that are traded on its platform;
  • The applicant must have provisions to be able to protect investors and the public interest, promote fairness and transparency, manage conflicts of interest, promote fair treatment of its users, and to ensure proper regulation and supervision of its users or any person using and accessing its platform; 
  • The applicant must have appropriate security measures in place; and
  • The applicant must have at least one responsible person who must be a chief executive or person primarily responsible for the operations and management of the DAX Operator. This responsible person shall be a liaison with the Securities Commission Malaysia; and
  • The Securities Commission may at any time impose additional financial requirements or other terms and conditions on the DAX Operator that commensurate with the nature, operations and risks posed by the DAX Operator.

Obligations of a DAX Operator

As a countermeasure against any unlawful activities that may occur on the electronic platform, DAX Operators are imposed with obligations as an RMO (pursuant to Chapter 6 of the Guidelines) and, in addition, as a DAX Operator (pursuant to Chapter 15 of the Guidelines). Such obligations include but are not limited to the following:

RMO Obligations

  • To monitor and ensure compliance with its rules;
  • To ensure fair treatment of its users;
  • To ensure that all disclosures are fair, accurate, clear and not misleading;
  • To obtain and retain self-declared risk acknowledgement forms from its users before investing in the DAX Exchange;
  • To provide prior disclosure to investors that any loss resulting from the investors trading or investment through the recognized market is not covered by the Capital Market Compensation Fund
  • To ensure all fees and charges payable are fair, reasonable and transparent;
  • To ensure that it does not engage in any business practices appearing to the Securities Commission to be deceitful, oppressive or improper (whether unlawful or not) or which otherwise reflect discredit on its method of conducting business; 
  • To have in place processes to monitor anti-money laundering and anti-terrorism financing requirements (under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001) as set out in the Guidelines on Prevention of Money Laundering and Terrorism Financing for Capital Market Intermediaries;

DAX Operator Obligations

  • To ensure that its platform is operating in an orderly, fair and transparent manner;
  • To have in place rules and procedures for the trading, clearing and settlement of Digital Assets on its platform; and
  • To conduct real-time market surveillance.

In addition to the non-exhaustive list of obligations above, DAX Operators have obligations including but not limited to risk management, client’s asset protection, settlement and custody, trading operations, market transparency and market making. Furthermore, the board of directors of RMOs and DAX Operators have obligations and reporting requirements to the Securities Commission pursuant to Chapter 6 and Chapter 15 of the Guidelines respectively and must adhere to requirements relating to the trading of Digital Assets and its internal audit and/or as directed by the Securities Commission from time to time. It is also pertinent for market operators to note that the Securities Commission may impose a fee or levy on each transaction conducted on the DAX Exchange. 

Pursuant to Chapter 9 of the Guidelines, an RMO and/or Dax Operator shall not cease its business and/or operations of its DAX Exchange without prior engagement with the Securities Commission. In this regard, the Securities Commission may issue a direction or impose any term and condition to ensure the orderly cessation of the business and/or operations of the DAX Exchange. Furthermore, pursuant to Chapter 10 of the Guidelines, the Securities Commission may withdraw the registration of an RMO and/or DAX Operator. An RMO and/or DAX Operator may also apply to the Securities Commission to withdraw its registration and provide reasons for its withdrawal by notice in writing.

Prohibition of Facilitation in Trading of Digital Assets

It is pertinent to note that, under Chapter 15 of the Guidelines, no DAX Operators are permitted to facilitate the trading of any Digital Asset unless the Securities Commission has provided approval for the trading of the said Digital Asset. DAX Operators are required to submit an application to the Securities Commission for approval in trading any Digital Asset, which shall enclose the following:

  • The nature of the project, the profile of its founders and management team if the Digital Asset has not been issued pursuant to an Initial Coin Offering approved by the Securities Commission;
  • The rights and benefits or utility represented by the Digital Asset;
  • The liquidity of the Digital Asset, including but not limited to the amount of Digital Assets in circulation, past trading volumes and the demand for the Digital Asset in Malaysia;
  • The level of distribution of the Digital Asset, including but not limited to the number of addresses created and active, concentration of the Digital Asset in specific addresses and patterns and concentrations of transactions;
  • The demonstration of availability of information related to the project, including but not limited to the whitepaper or any other disclosure document accompanying the Digital Asset and the progress of the project including both business and technical aspects;
  • The security of the underlying distributed ledger, including but not limited to the number of nodes, any history of hacks and other forms of attacks and any known security vulnerabilities; and
  • Compliance with all other legal and regulatory frameworks in Malaysia and other jurisdictions which the project operates in.

The issuance of a Digital Token must comply with the Guidelines issued by the Securities Commission and requires approval from the Securities Commission prior to being traded on any DAX Exchange. The use of digital currencies as an investment and/or trading in digital assets are only permitted using Ringgit Malaysia. The Central Bank of Malaysia does not recognize Bitcoin as a legal tender in Malaysia as compared to foreign currencies which are recognized as legal tender. 


The recognition of digital asset exchanges in Malaysia and its relevant guidelines have been long anticipated by keen investors, traders and entrepreneurs in the digital assets market. These advancements have provided some basic structure for market operators in the digital currency industry. 

In light of the above, the requirements for the registration as a DAX Operator in Malaysia has taken a step forward with clarification provided by the Prescription Order and the Guidelines in hopes of being consistent with other jurisdictions such as Switzerland, Singapore and South Korea.

By Tommy Wong