Keynote Address by

YB Dato’ Dr Jamaluddin bin Dato’ Mohd Jarjis

Minister of Finance II

SC – Industry Dinner and Closing Dinner of SC Dialogue 2003

Sheraton Imperial Hotel

22 October 2003

Distinguished guests,
Ladies and gentlemen,

It is a pleasure for me to be with all of you here tonight for the closing dinner of the SC Dialogue 2003. Apart from the SC Dialogues, the Securities Commission celebrates its 10 th year anniversary this year. The Securities Commission was established in 1993 with a broader mandate than most other securities regulators. They were asked not only to regulate to ensure a fair market and to protect investors but also to facilitate the development of the capital market.

The growth of the capital market since the establishment of the Securities Commission – whether benchmarked by performance metrics such as funds raised, assets under management and turn-around time in processing corporate proposals speak volumes for the good work that has been achieved. In this regard, I would like to take this opportunity to congratulate the Securities Commission on the occasion of their 10 th anniversary.

Within a relatively short time of its establishment, the SC was able to formulate, with significant input from the private sector, the Capital Market Masterplan (CMP). The CMP was launched in February 2001 and charts the strategic direction for the capital market over a 10-year period. The broad-based and comprehensive approach to capital market development has been widely praised. The CMP has publicly been held out as a model used by other countries in developing growth plans for their capital markets and the SC regularly receives requests from other regulators to provide technical assistance.

Many of the weaknesses that emerged during the 1997 crisis had been effectively addressed during Phase 1 of the CMP. Investor confidence in the Malaysian capital market has now improved substantially following a substantial strengthening of the corporate governance framework. Malaysia now has a corporate governance framework that has been cited as a model for other countries to follow. Stockbroking companies, which were vulnerable during the crisis, now have strong balance sheets and are subject to stringent prudential requirements.

Entrepreneurs now find it easier to raise funds thanks to efficiencies and flexibilities in the capital-raising process and can access capital from thriving bond markets, a now well-established Islamic capital market or look to venture capital funds. The diversification of the sources of financing has substantially enhanced the resilience of the Malaysian financial system to systemic shocks through better matching of the maturities of funding sources with borrowings.

Retail investors have also benefited significantly from the substantial reduction in transaction costs, better access to stockbroking services and have access to higher-quality and more timely information to make better investment decisions. Also, the consolidation of the exchanges has consolidated liquidity for participants and will facilitate the creation of a central platform for them to invest and trade a broad array of products.

During CMP Phase 1, there was also significant development of the Islamic capital market with expansion of the range of Islamic capital market products such as Islamic debt securities, equity-based derivatives, equity indices and managed funds. Malaysia’s profile in the international Islamic capital market has risen substantially with the government’s landmark issuance in June 2002 of the world’s first sovereign Islamic bond for US$600 million while the participation of Malaysian intermediaries are being sought for global issues being considered by other Muslim countries. This profile is also helped by the prominent role of the SC in international securities regulation. The SC currently heads a task force on Islamic capital markets for the International Organisation of Securities Commissions (IOSCO).

Ladies and Gentlemen,

I have been informed that over the past few days you have had very fruitful discussions covering various aspects of capital market development during the SC Dialogues. Your deliberations on the critical issues and challenges for the next phase of capital market development are timely indeed.

The global economic environment is becoming more uncertain. The balance of global economic and financial power is starting to shift while technology is eroding national boundaries and converging industries. The seismic shifts in the global financial landscape could trigger disturbances in one part of the world and transmit shocks to other parts of the world.

The challenge for Malaysia is that it must further strengthen and build its resilience to unanticipated systemic disturbances. We must start by taking cognisance of our weaknesses and work towards rectifying them to prepare ourselves to compete in an uncertain and possibly harsh global environment. Everywhere, and particularly within the region, countries are fast improving their capabilities and raising their standards in the capital market.

This is therefore not a time to be focusing inwards. Indeed, we should be outward-looking and forward-looking, sensitive at all times to global developments. Apart from constantly improving ourselves, we must be prepared to leverage on our strengths in anticipation of the future opportunities that will be created by a thriving and prosperous Asian region with increasingly inter-linked economies and markets.

In this regard, there is a need to build on past efforts to further develop the quality and breadth of capital market services to be on par with international standards. Towards this end, it is appropriate that capital market policy for CMP Phase 2 will focus on enhancing liquidity, value creation and on strengthening Malaysia’s position within a global network – areas highlighted as being of strategic importance in the CMP and, more recently, by the Prime Minister in his Budget speech.

These are critical elements in enhancing the competitiveness of the Malaysian capital market and in meeting the challenges posed by structural developments on the international scene. The need to ensure liquid markets is clearly a priority and the government, in fact, had announced the 10 capital market measures in March this year to enhance liquidity in the capital market. The importance of liquidity to the well-functioning of the capital markets cannot be over-stated and should remain a priority focus.

Having strengthened the capital market, there is a need to leverage these strengths through facilitating value creation by capital market intermediaries and institutions. Efficient trade and settlement systems, high standards of disclosure and compliance and low transaction costs are now regarded as basic necessities for a capital market.

For a capital market to be internationally competitive, the market must offer a superior value proposition – be it superior quality investible products or high qualities of service. The Government and regulators will facilitate the re-engineering of business models to enhance competitiveness and value creation but the private sector must take the lead and seek ways and means to deliver greater value to their customers. This may be in the form of re-designing delivery channels, packaging, product innovation, branding and marketing. In this context, capital market policy will be oriented towards helping those most able to evolve their business models rather than to protect those who are least able to compete.

Even as domestic players create more value, they must seek to enlarge their market. After all, national boundaries are becoming less of a constraint for international players as capital becomes increasingly mobile. Similarly, as domestic players build their capacity, they must seek to leverage on the strengths of the Malaysian capital market to assist their expansion abroad.

In other words, local players must re-engineer their business models and re-think their business strategy within the context of strengthening their position within a global network. The connectivity of markets is a given and consideration should be given to broadening market access in a pragmatic manner to enhance competitiveness and value creation.

Ladies and gentlemen,

I call upon intermediaries and institutions in the Malaysian capital market to rise to the challenges being before put before them. They must develop a vision for their business and their vision can support our overall vision to become a developed nation by 2020.

With the Government and industry striving together in a mutually beneficial partnership, I believe we can achieve greater success and realise our ambitions, lofty as they may appear.

I thank you for your attention.