Surveillance - Regulatory Performance and Outcomes

Surveillance

The SC undertakes proactive surveillance across the various market segments under its purview to detect potential misconducts and identify vulnerabilities which allows emerging risks to be pre-empted through early engagements and interventions.

Detecting and Deterring Corporate Transgressions
The SC plays an important role in monitoring the conduct of public-listed companies (PLCs) through its surveillance efforts to ensure compliance with securities laws and regulations, with the aim to safeguard the interests of investors and maintain the integrity of the capital market. The SC’s Corporate Surveillance Programme comprises a wide range of activities, including scrutinising corporate transactions, disclosures as well as the financial statements of PLCs to detect irregularities or potential misconduct.

PLC fundraising via share issuances and disclosures on corporate transactions remained a key priority of the SC’s surveillance team in 2023. Surveillance reviews pertaining to 118 PLCs were undertaken based on, among others, announcements by PLCs, news in mainstream and non-mainstream media as well as complaints received to detect potential breaches of securities laws or non-compliance with financial reporting standards. As part of the reviews, the SC also engaged with the directors, officers, auditors and other professionals of the PLCs involved for further factfinding. These engagements also served to remind directors of the need to consistently act in the best interest of the companies and their shareholders. The surveillance reviews undertaken highlighted some concerns relating to disclosures, utilisation of funds raised and the application of financial reporting standards. Where irregularities or possible securities law breaches were detected, they were escalated for formal investigation and/or enforcement action. Where relevant, Bursa Malaysia was also engaged in matters requiring closer scrutiny on their part as the frontline regulator. In 2023, the SC strengthened its surveillance approach, targeting specific areas of concern for review, resulting in more effective and efficient detection of potential misconduct. As a result of a more targetted approach, 166 reviews of potential corporate misconduct were completed (2022: 317 reviews), with eight cases being referred for formal investigation (2022: 4 cases).
Fostering Compliance with Take-over and Merger Regulations
As part of its mandate, the SC also closely monitors compliance with the take-over requirements to detect misconduct and breaches which could jeopardise the interests of the investing public. In 2023, the SC had imposed sanctions comprising a directive to sell down shares, penalty of RM500,000 and reprimand against certain parties for failure to undertake a mandatory take-over offer following the acquisition of shares which exceeded the creeping threshold, i.e. exceeded 2.0% of the voting shares within a period of six months. In addition, the SC had also issued Infringement Notices for other non-compliances detected including for submitting the application for exemption after the mandatory offer obligation was already triggered and non-compliances relating to dealings in securities during the offer period and/or disclosure of information to the SC (Table 17).
TABLE 17
Surveillance outcomes

Surveillance outcomes
2023 2022

Administrative actions*

1 2

Infringement Notices*
5 5

Note:
* Statistics also reflected under the SC’s administrative actions (Table 25) and Infringement Notices (Table 26).
Further, the SC seeks to pre-empt major issues in takeovers and other relevant transactions by encouraging early consultation to clarify the application of the Code/ Rules governing such transactions. In 2023, consultations with the SC involved diverse aspects of take-over regulations including on ultimate offeror, joint offeror and concert party matters, triggering of the mandatory offer obligation and eligibility for exemption, conditions and pre-conditions to offers, favourable deals and frustration of offers, restrictions following offers and possible offers, disqualifying transactions in relation to whitewash procedures and other general enquiries. Through the consultation process, the SC fostered a conducive environment for the SC to provide relevant clarifications and guidance, with the aim to enhance stakeholders’ adherence to the regulatory requirements for take-over and merger transactions.

During 2023, the SC and Bursa Malaysia also conducted several dialogues with the board of directors of companies to be listed on the Main Market or the ACE Market on pertinent requirements to be observed by listed companies, including the key take-over regulations, prior to the companies’ listing. This initiative served as crucial forums for disseminating essential regulatory requirements and promoting a better understanding among newly listed companies.

Apart from the SC’s interaction with advisers during the review of applications or consultations, the SC also engaged practitioners to discuss complex issues and to clarify expectations on compliance with take-over requirements. On 28 July 2023, a focus group meeting was held between the SC, Bursa Malaysia and 20 participating legal firms to discuss various corporate finance and investment-related matters, including takeovers and mergers. Further, on 5 October 2023, the SC hosted a dialogue on current take-over and merger issues, which was attended by representatives from 26 advisory firms and the Malaysian Investment Banking Association (MIBA). These engagements enabled the SC to remain vigilant and stakeholder-focused in ensuring that the regulation of take-over activities in Malaysia remains aligned with the evolving market landscape.

In summary, the SC’s multifaceted approach involving proactive monitoring, consultations, educational dialogues and practitioner engagements demonstrates its commitment in maintaining a fair and well-regulated marketplace in Malaysia and underscores its effectiveness in regulating take-over activities.
Maintaining Fair and Orderly Markets through Proactive Surveillance
A central pillar of the SC’s approach to market surveillance involves heightened monitoring of trading activities surrounding material corporate developments. This is essential for the detection of potential insider trading activities which undermines market integrity and equal access to information by the investing public. To achieve this, the SC actively stayed attuned to corporate developments from a broad spectrum of sources. The monitoring and assessment of company disclosures, complaints received and referrals from Bursa Malaysia as well as other information sources such as the media remained key surveillance priorities in 2023.

Additionally, the SC leveraged its automated trade surveillance system, complemented by in-house advanced analytics, to identify and analyse suspicious trading activities. This effectively facilitated timely detection of trading irregularities, including those surrounding periods of increased price and volume volatility which, in turn, enabled objective identification of potential market abuse matters and informed decision on appropriate follow-up regulatory actions.
Addressing Trading Anomalies at an Early Stage and Detecting Market Abuses for Further Investigation
The SC remained vigilant in addressing trading anomalies that could pose potential risks to the integrity of the market and collaborated closely with stakeholders, utilising a variety of enforcement tools to deter illegal and unethical activities in the capital market.

The SC’s market surveillance activities in 2023 involved 1,405 assessments (2022: 1,333 assessments) on trading anomalies detected and in-depth analyses of market abuse cases including possible insider trading and market manipulation. Alongside such market surveillance assessments, regular engagements were conducted with Bursa Malaysia to ensure that co-ordinated regulatory responses by the frontline regulator are proportional to the risks and gravity of surveillance issues detected. Through such collaboration, swift regulatory actions were undertaken to curb abusive trading behaviour at an early stage. Such pre-emptive interventions include the issuance of Surveillance Notices by Bursa Malaysia requiring market intermediaries to promptly address irregularities and take immediate remedial actions.

The SC is committed to striking a healthy balance between the need to ensure orderly trading conduct and facilitating a vibrant marketplace, in line with the SC’s dual mandates to develop and regulate the Malaysian capital market. To this end, the SC took into consideration diversity in trading strategies by market participants when reviewing trading activities. The SC analysed trading patterns and behaviours to distinguish between speculative trading, which is an inherent element of market dynamics, and abusive conduct that would tantamount to market manipulation. Matters pertaining to prevailing areas of concern were prioritised and subjected to expedited review. Where elements of possible market abuse were substantiated, such cases were escalated for further investigation to be conducted.
Leveraging Technology and Advanced Analytics for Greater Efficiency
The SC continued to place strong emphasis on the adoption of Supervisory Technology (SupTech) and data analytics to enhance the efficiency of the SC’s regulatory functions.

The SC embarked on initiatives to enhance the quality of trading data feed from Bursa Malaysia as well as the functionality of the SC’s surveillance system and analytical tools to facilitate more granular analysis of trading activities. The enhancement is expected to enable the SC to gain greater insights and efficiency in the detection, analysis and decision making on market surveillance matters.

In addition to system-based detection of trading irregularities in the equities market, the SC has deployed SupTech capabilities to enhance its surveillance on unlicensed activities and monitoring of PLCs. A web surveillance tool is now being utilised to conduct ongoing and in-depth monitoring of unlicensed activities to ensure the SC remains vigilant, well-informed and equipped to respond effectively to issues arising from such activities. The SC has also built a platform with a holistic view of PLCs’ key financial indicators and integrated SupTech tools to enable automated detection of PLCs’ financial health and supervisory concerns. These insights aim to empower data-driven decisions as well as more targeted surveillance and supervisory reviews, to proactively address any concerns.
Strengthening Cross-Border Surveillance Co-operation
The SC continued to maintain close collaboration with international surveillance counterparts through informal channels of information sharing and exchange, and by engaging in dialogues on common surveillance issues during study visits to the SC. Such collaboration and engagements seek to achieve positive surveillance outcomes that mutually benefit the SC and capital market regulators from other jurisdictions.

In order to keep pace with surveillance issues arising in a fast moving market, the nature of co-operation has evolved beyond formal mutual legal assistance channels to informal exchanges of experience with regional surveillance counterparts. Regular contacts have resulted in reciprocity in sharing of experience, information and validation in dealing with certain market surveillance issues and challenges arising. These efforts ensured that the SC’s approach on key surveillance concerns are relevant and in line with international best practices.
Ongoing Monitoring and Surveillance over the Corporate Bonds and Sukuk Market
In 2023, domestic bonds yields mostly trended sideways with the 10-year MGS ranging between 3.7% to 4.2%. BNM had increased the OPR by another 25bps in May 2023. Both Malaysia’s and the US’s Consumer Price Index (CPI) readings have declined as a result of rate hikes by central banks worldwide. From the SC’s observations, these events did not have any major impact on domestic corporate bonds issuers’ ability to raise funds at competitive rates throughout the year.

As part of the SC’s continuous efforts to supervise the corporate bonds and sukuk market, the SC closely monitors corporate bonds issuers under credit stress. Presently, such corporate bonds issuers are minimal (less than 2% of the corporate bonds and sukuk market) and mainly originated from the energy and utilities, real estate and transportation sectors. These issuers have, for example, requested investors’ indulgence for extension of time to meet agreed-upon financial ratios, delays in coupon or principal payment as well as other forms of refinancing.

The corporate bonds and sukuk market had witnessed one issuer default in 2023, amounting to RM200 million or only 0.02% of total outstanding corporate bonds and sukuk. Eight rating downgrades were also observed in 2023, compared to seven in 2022. Out of the eight rating downgrades, three were from the real estate sector, two from the financial sector, one from the information technology sector, one from the industrial sector and one from the energy and utilities sector. As for rating outlook, there were 10 issuers with downward revisions in the corporate bonds rating outlook in 2023 compared to 11 in 2022.
Strengthening Bond Market Surveillance Activity
In the corporate bonds and sukuk market, market participants play a very important role in maintaining market integrity, by ensuring compliance with regulations and protecting investors’ interest. In this regard, the SC has engaged market participants such as credit rating agencies, bond pricing agency and bond and sukuk trustees throughout 2023, to exchange knowledge, offer insights, and discuss solutions to current and future challenges.

In July 2023, the SC conducted a closed-door discussion with a credit rating agency to exchange insights on the latest developments impacting the Malaysian bond and sukuk market. Among the issues discussed include the outlook post-pandemic, domestic and international interest rate expectations, probability of defaults, rating assignments and challenges and opportunities for the Malaysian bond market. The SC will continue to engage relevant market participants to keep abreast with latest market developments.

Surveillance outcomes	2023	2022
Administrative actions*	1	2
Infringement Notices*	5	5

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.