Connection to Section 377 of the SC guidelines on unlisted capital market products

The Securities Commission guidelines for unlisted capital market products issued under this framework—such as structured products, wholesale funds, and cash trust products—are subject to the provisions of Section 377. These guidelines include requirements for lodgment, disclosure, and compliance, as well as submission of an information memorandum and ongoing reporting obligations to maintain transparency and investor protection.

Cash trust products are financial instruments that combine features of a trust with liquidity management, often involving a pool of cash or cash-equivalent assets managed on behalf of beneficiaries. These products share some connections with structured products and wholesale products in terms of risk management, investment strategies, and regulatory frameworks.

Here’s how cash trust products relate to structured products and wholesale products:

1. Link to Structured Products

• Customization and Risk Management: Like structured products, cash trust products can be designed to meet specific financial goals. They may be structured to provide steady returns or capital preservation, leveraging investment in low-risk, liquid assets such as money market instruments, fixed income securities, or short-term bonds.
• Underlying Assets: Structured products often involve a combination of traditional securities and derivatives. In the case of cash trust products, the underlying assets are typically safer and more liquid, but they can be part of a larger structured product if combined with other securities to create a hybrid investment. For example, cash trusts can serve as the stable, capital-protected component in a structured product designed to offer balanced risk.

2. Link to Wholesale Funds

• Target Investors: Cash trust products can also be structured as wholesale products, which are designed for sophisticated or institutional investors rather than retail investors. Wholesale funds, including cash trusts, are part of the capital market framework under the Lodge and Launch Framework, meaning they can be launched after the required documentation is lodged with the SC.
• Investment Strategy: Both wholesale funds and cash trusts focus on optimizing returns for institutional investors through careful asset management. While wholesale funds can include a wide range of high-risk, high-reward investments, cash trust products tend to focus on conservative, low-risk strategies aimed at capital preservation and liquidity management.

3. Regulatory Connection

Cash trust products, like structured products and wholesale funds, fall under the regulatory purview of the Securities Commission Malaysia (SC). They must comply with guidelines related to transparency, risk management, and investor protection. The Lodge and Launch Framework applies to wholesale versions of these products, streamlining the issuance process for institutional investors, which also applies to some cash trust products.

4. Capital Preservation Focus

While structured products can offer riskier profiles and leverage derivatives, cash trust products are typically designed for capital preservation. They are closer to the conservative end of the investment spectrum, often suitable as a low-risk component within a broader portfolio that might include structured products and wholesale funds. They are often used by corporate treasuries or institutions needing liquidity, with limited exposure to market volatility.

Conclusion

Cash trust products, while typically lower-risk, share characteristics with structured and wholesale products in their flexibility and potential customization for sophisticated investors. They are part of the broader financial landscape regulated under the Lodge and Launch Framework, and they can serve as a safer, capital-preserving option in the investment portfolios of institutional or wholesale investors