New SC measures to facilitate diversification of investments and boost efficiency of capital market

The Securities Commission (SC) today announced measures to facilitate the diversification of investments by domestic investors and further enhance the efficiency of the Malaysian capital market.

The SC measures include the revision of the frameworks on investments in foreign securities, secondary market trading of non-ringgit bonds (non-RM bonds), primary offering of non-RM bonds, offerings of foreign shares in Malaysia and several other amendments to facilitate further flexibility in the capital market.

These latest measures by the SC complement the liberalisation of foreign exchange administration rules by Bank Negara Malaysia on 1 April 2005.

Further details of the measures are:

  • Investors allowed to invest in foreign securities listed on recognised foreign exchanges

Investors are now allowed to invest in foreign securities that are listed on foreign exchanges recognised by Bursa Malaysia Bhd (Bursa Malaysia), and are exempted from the requirement for SC approval under section 32 of the Securities Commission Act 1993 (SCA). Currently, there are 51 exchanges recognised by Bursa Malaysia, including Hong Kong, Singapore and Thailand. Investors may obtain the full list of recognised exchanges from the stockbroking companies.

All investments abroad by unit trust management companies would still have to be managed by fund managers that are licensed by the SC, in accordance with the existing regulations. Additionally, in accordance with the Guidelines on Unit Trust Funds, licensed fund managers who are investing abroad for unit trust funds are required to seek the SC’s prior approval on the foreign exchanges that they intend to invest in.

  • ‘Sophisticated investors’ need not seek SC approval to execute secondary trades of non-RM bonds

In relation to the bond market, ‘sophisticated investors’ are now allowed to execute secondary trades of non-RM bonds among themselves, without the prior approval of the SC. ‘Sophisticated investors’ that are commercial banks, merchant banks, Islamic banks, universal brokers or consolidated brokers are required to submit a monthly report to the SC on their non-RM bond sell trades.

‘Sophisticated investors’ refer to institutional investors or high net worth individual investors comprising corporations with minimum net assets of RM10 million and individuals with a minimum net worth of RM3 million, and to principals that enter into transactions of a minimum value of RM250,000 each; as described in paragraphs 9, 10 or 11 of Schedule 2 of the SCA.

  • Flexibilities for issuance of foreign currency-denominated bonds to ‘sophisticated investors’

The framework for primary offerings of foreign currency denominated bonds has been liberalised whereby the same regulatory exemptions under Practice Note 1 to the Private Debt Securities Guidelines and Practice Note 1 to the
Islamic Securities Guidelines, which exempts Malaysian companies from certain regulatory requirements if their non-RM bonds are issued to investors overseas; now extends to issuances to ‘sophisticated investors’ in Malaysia.

The Guidance Note on the regulatory framework for secondary trading of non-RM bonds and the revised Practice Notes and frequently-asked-questions ( FAQs) on primary issuances of non-RM bonds are available in the Bond Market section of the SC website here.

  • Offerings of foreign shares in Malaysia now allowed, subject to SC approval

Offerings of foreign shares in Malaysia are now permitted with the SC’s approval on a case-by-case basis. In support of this measure, specific exemptions from the SC’s guidelines may be considered based on the strength of the regulatory requirements of the home jurisdiction of such issuers. However, only ‘sophisticated investors’ can invest in these securities.

Other amendments implemented by the SC to further enhance the efficiency of the market include the revision to paragraph 12 of Schedule 1 of the SCA to incorporate the exemption made to existing holders of shares of unlisted public companies in the trading of these securities to be extended to ‘sophisticated investors’ and the exemption from the prospectus requirement for employee share option schemes (ESOS) for non-executive directors. Additionally, in relation to the conversion of convertible securities into listed shares, the prospectus requirement has been abolished to ensure minimal cost and an efficient conversion process.

Further details of the measures and amendments mentioned above are available in a set of FAQs that is available on the SC website.

15 September 2005