Opening Address


YBhg Datuk Ranjit Ajit Singh
Managing Director, Securities Commission Malaysia

at the

Malaysian Capital Markets Conference 2009
7 October 2009, Shangri-La Hotel, Kuala Lumpur

Yang Berhormat Senator Datuk Dr. Awang Adek Hussein, Deputy Minister of Finance,
Distinguished guests, ladies and gentlemen, good morning.


It gives me great pleasure to be here today and I thank IFR Asia for inviting me to give the opening address this morning. I would also like to commend IFR Asia and its sponsors for their efforts in providing market participants a platform to meet and to seek new strategies in advancing our capital market and to identify areas for growth and development in these challenging times. Certainly, as we are all aware, it is very often in these circumstances that those who are ready and position themselves for the turnaround will be able to benefit the most when take-off is underway.

What has happened in the global markets since the crisis


Just over a year has passed since the collapse of Lehman Brothers in September last year. At that time, there was huge uncertainty as to what would transpire in markets and economies around the world. The financial crisis and the contraction in economic activity that has taken place as a consequence have resulted in what is regarded as the worst global downturn since the Great Depression. According to a recent McKinsey report, the total value of world’s financial assets fell by US$16 trillion last year to US$178 trillion, the largest setback on record. It is estimated that collectively total household and investor wealth of US$28.8 trillion has been erased as of the middle of 2009. To put this into perspective, the world’s households saved about 5% of their total disposable incomes in 2008 which amounted to $1.6 trillion. This means they would have to save that amount for 18 years to be able to regenerate the amount of wealth of $28.8 trillion lost. Of course the actual time taken will depend on many factors.


So where are we as far the economic recovery is concerned? According to the IMF, there is significant uncertainty going forward. While global growth forecasts have been revised upwards (for 2009 and 2010), global economic recovery remains uncertain and we are likely to see a long period of slow growth. More significantly they warn that the risk of the adverse feedback loop between real and financial sectors are ongoing as banks remain under strain and households and financial firms still need to reduce leverage.


Against this backdrop, there are countless debates and discussions going on even as I speak, among international groups and world leaders taking place, culminating in numerous proposals and recommendations for reform. Most, if not all of these proposals question traditional paradigms in conventional finance and suggest a move towards some form of re-regulation of the financial industry. Many have lost faith altogether in the traditional believes of efficient markets – markets which are self correcting and rational. Financial innovation, once so highly strived for in the industry is now regarded with a degree of caution and suspicion. Actions to “reshape regulatory systems” are actively being undertaken at this present time.


Among the key policy recommendations that have been made include the need for stricter capital requirements for banks in order to curb excessive risk taking. International agreement has been reached on the need for better quality capital and liquidity standards and a more counter-cyclical approach to regulation.


Another key area of focus is systemic risk. The risks posed by large financial institutions which are ‘too big to fail’ are widespread. Their failure would be devastating on other institutions, the financial system as a whole and the broader economy, which is precisely why regulators and governments often step in to protect these institutions from failing. While this may solve short term issues, it creates moral hazard issues in the long run as managers are incentivized to take more risk knowing that they will be saved in times of trouble. [“Too Big To Rescue”] International groups are re-examining the appropriate scope of supervision and regulation to ensure that institutions which are systemically important are subject to adequate oversight.


Stricter regulation has also been called for in product markets particularly OTC derivatives, and a need for tighter oversight of Credit Rating Agencies, as well as for unregulated entities such as hedge funds. The global crisis has also revealed the important issue of corporate governance, and it is evident that the current uproar concerning remuneration highlights a form of corporate governance failure. This has resulted in proposals by the G20, FSA and other leaders of international regulators to call for reforms to remuneration structures to better reflect longer term goals and effective risk management.


But, there is a need to be cautious that the regulatory pendulum does not swing too far. On one extreme, you have the likes of the chairman of the UK FSA, Adair Turner who call for radical change in regulation and supervisory approaches, recently sparking a commotion in the industry when he spoke of some financial services which have proliferated in the last few years as being “socially useless”. On the other hand, others have also argued that too much regulation will stifle innovation, causing more harm than benefit to the industry in the long run. For example, the Chief Executive Officer of the Hong Kong Securities and Futures Commission, Martin Wheatley recently stated that the most important lesson to be learnt out of all this is “not to over-react”.


While this crisis has exposed weaknesses in the financial structures of most major economies, capital markets within Asia including ours have proved to be resilient and relatively stable. As such we have been able to focus on continuing to develop and liberalize our market to improve international competitiveness, while at the same time strengthening our regulatory framework.

Progressive liberalisation to enhance competitiveness of capital market


There is no doubt that the indirect consequences of the global financial crisis have been felt in our economy and the market. However, the impact to a large extent has been cushioned by the strong level of liquidity in the financial system, as well as financial soundness of our intermediaries and institutions, which has been nurtured by a robust regulatory and supervisory framework formulated since the Asian financial crisis.


We have also seen the capital market adjust in an orderly manner through self-corrective mechanisms that prevent specific dislocations from growing into systemic problems in the financial system. For example, there have been instances where corporates had raised funds through the loan market as the cost of borrowing in the bond market became more expensive. This reinforces the natural inter-play that should take place between the equity, fixed income and the loan markets within a well functioning financial system that provides a reliable and cost effective source of funding for corporates in any market conditions.


Indeed, as international funds increasingly flow to Asia where economic growth is expected to be more robust in the coming years, Malaysia must to continue to offer an attractive value proposition for fund-raising and investment in the region in order to attract these flows. It is imperative for us to keep up with the progressive liberalisation measures to further strengthen the competitiveness of our capital market.


Towards this end, August 3rd this year marked a significant milestone when we introduced a new regulatory framework which streamlined our approval process for listings and equity fund-raising, as well as merging Bursa Malaysia’s Main and Second Boards into a single unified board, and revamping the previous MESDAQ Market into an alternative market known as ACE Market that caters to companies from all sectors. These reforms are aimed at reducing time-to-market to enable companies to raise funds in the capital market in a more efficient and cost effective manner. Certain responsibilities for approval of equity-based corporate proposals have been shifted from SC to Bursa Malaysia, also aimed at making the market more efficient.


We continue to make significant progress in deepening the bond market. To widen the range of instruments in this market, we have enhanced the regulatory framework governing the issuance of foreign currency sukuk which are originated in Malaysia. In addition to the deemed approval process from the SC for issues rated at investment grade and above, a set of attractive tax incentives has been offered to investors, advisors and intermediaries involved in the issuance and trading of foreign currency-denominated sukuk. These tax incentives include income tax exemption on profit, advisory fees and trading gains earned from these issues.


As a further step to raise the profile of bonds and sukuk in Malaysia, we have through Bursa Malaysia provided a facilitative listing facility for these instruments. Investors, both domestic and foreign, are now allowed to freely access the offering documents and post-issuance information relating to these issuances. Bursa Malaysia has also undertaken to approve a listing application within one working day upon full submission of documents and all fees for issues listed until end-2009 will be waived in order to promote use of this facility among the bonds and sukuk issuers. As of today, four issues, of which two are denominated in foreign currency, have been listed on Bursa Malaysia under this framework. We are optimistic that the number of listing will rise in the near future.


We must also further leverage on our core strength in Islamic finance. Today, we are one of the international financial markets that offer a comprehensive range of Islamic products from sukuk, Shariah-compliant equities and funds, to Islamic structured products. The size of Islamic capital market has reached RM803 billion as at end-August 2009, representing 54% of Bursa Malaysia’s market capitalisation. There will be no shortage of demand for Islamic capital market products in both the domestic and international markets. The strong interest among the international financial markets to grow their Islamic finance industry will only help to expand the boundary of Islamic capital market.

Strengthening our regulatory framework


While we work towards enhancing our global competitive position, we are mindful of the need to continue to strengthen our regulatory framework to ensure that any development of the capital market is accompanied by appropriate supervision and oversight, and to heed the lessons of the current global crisis.


We continue to pay strong attention to systemic risk and investor protection issues. Areas such as definition of “sophisticated investors” are being looked at closely with a view to refining and attaining the right classification in terms of ensuring that appropriate information is available, commensurate with the ability of investors to make informed decisions.


Sales practices of intermediaries are another area that is being subject to close scrutiny. As financial products become more sophisticated and complex, providers of these instruments should strengthen their “know your client” (KYC) procedures by exercising greater consideration on the customer’s risk appetite, the usefulness of the product to the customer, and the ability of customers to sufficiently understand the risks involved. In addition, there must be greater understanding by the sales agents of the products they sell to customers ie “know your products”


The supervisory approach towards the OTC market also needs to be examined. This is very important, as the recent financial crisis has clearly exposed the vulnerability of the financial system to significant market activities that may not subject to adequate regulatory oversight. Areas for review in the OTC market, which are also being looked at by financial and market regulators across the globe, would include transparency and intermediary supervision.


Ladies and gentlemen,


Malaysian capital markets is resilient and showing signs of recovery

Since the second quarter this year, encouraging signs of recovery have emerged in our capital market. Convergence is already seen on the yield spread between MGS issues and highly rated corporate papers, thereby providing a window of opportunity for more bond issuances in the coming months. For the first nine months of this year, the value of corporate bonds and sukuk issued has already reached RM45 billion. Although slightly lower than RM47 billion recorded for the corresponding period in 2008, with many issues lining up to tap on the market, the total issuance value for this year will likely surpass that of last year.


Similarly, the equity market has shown sustained and increased fund-raising interest. Until July this year, funds raised in the equity market amounted to RM12 billion, which is more than double the amount raised in 2008. Analysts cite better-than-expected earnings performance of our listed companies, the re-listing of Maxis, and possible entries of foreign partners in some of our leading companies, as favourable factors to warrant a re-rating of the market.


The fund management industry continues to remain the fastest growing segment in our capital market. In particular, the net asset value or NAV for unit trust funds has increased from RM130 billion as at end-December 2008 to reach RM180 billion as at end-August 2009, which represents 20% of Bursa Malaysia’s market capitalisation. The industry has recorded net sales of RM18 billion in the first eight months this year, driven by the growing demand among investors for higher return investments and greater investment diversification.


Ladies and Gentlemen,



Although the worst part of the recession is seen by consensus as being over, there are still uncertainties in terms of recovery in the horizon. However, Asia and emerging markets are seen to be in a relatively better position to take advantage of recovery. The challenge lies ahead for Malaysia to continue to strengthen market resilience, enhance market competitiveness and to be able to adopt and adapt quickly to the changing market environment to grab the opportunity for further growth and development.


On this note, I wish all of you all a productive session ahead.

Thank you.