Public interest representation in the governance structure of the demutualised KLSE

In response to the questions raised at the press conference this afternoon to announce the Government’s approval for the demutualisation of the Kuala Lumpur Stock Exchange (KLSE), the Securities Commission (SC) would like to elaborate on the public policy framework in relation to the proposed governance structure of the demutualised entity.

The consideration of public interest representation on the governance structure is central for the demutualised exchange to address the commercial pressures of a for-profit entity and to ensure that the exchange remains committed to fulfill its regulatory and public interest responsibilities to appropriate standards.

In this respect, the public interest responsibility of the exchange creates special corporate governance needs. The governance structure has an important bearing on its commercial performance, and its ability to reconcile the competing interests of the managers, owners, users and potential users of its services.

A strong board is one that adequately addresses issues of investor protection, accountability, transparency and corporate governance. Therefore, it is imperative that the composition of the board reflects the broad range of interests of various stakeholder groups. In this regard, public interest directors do not represent shareholder interests exclusively.

It is in recognition of this that up to a maximum of half the Board will comprise public interest directors whose appointments will be made by the Minister of Finance, on the recommendation of the SC.

Such appointments would comply with the recommendations of the Code on Corporate Governance and the Listing Rules which specify that directors should retire from office at least once in three years but shall be eligible for reappointment.

The proposed legislation will state explicitly that these public interest directors are appointed to represent the broader stakeholder interests in the capital market and, in the discharge of their duties as such, they are mandated to ensure that public interests are not compromised.

A study of the governance structures of demutualised exchanges in various countries reveals that such public interest concerns is not uncommon. Attached in the appendix is a jurisdictional comparison of the governance structure of the demutualised exchanges in Australia, Singapore, United Kingdom, Hong Kong and Canada.


21 November 2002



The board was reduced from 15 to nine, where reductions came from the broking community. Out of nine directors, eight are non-executive. Individual appointments will be chosen from a panel nominated by the Australian Stock Exchange (ASX). The Australian Securities and Investments Commission (ASIC) will have a power to veto any particular panelist and proposed appointees will be notified to the Minister prior to their appointment.


The board has 11 directors, out of which nine are non-executive. Only four of the 11 are made up of the broking community. The Singapore Stock Exchange (SGX) has to seek the Monetary Authority of Singapore’s (MAS) approval for the appointment of its Chairman and CEO.

The SGX has set up a Nominating Committee, where it recommends appointments to the Board and key management positions. The appointment of all members of the Nominating Committee is subject to MAS’ approval.

The Merger Act provides that MAS may issue directives to SGX regarding its governance and other matters.

Hong Kong

There are 15 directors, six are shareholder returned and eight are government appointees or public interest directors, with the Chief Executive of Hong Kong who is an ex-officio member. The Chief Executive of the Hong Kong Stock Exchange (HKEX) will remain an ex-officio member of future boards.

The total number of government appointed directors on any future board in 2003 will be no more than the total number of directors returned by the shareholders of HKEX.

The Chairman is elected by the directors, subject to approval by the Chief Executive. The Chief Executive Officer (CEO) and Chief Operations Officer (COO) are appointed by the board on recommendation by its Chairman, subject to the approval of the Securities and Futures Commission (SFC).


A new board-level regulation committee for the Toronto Stock Exchange (TSE) has been set up to oversee regulatory operations. The committee is composed of majority of independent representatives, including representatives from all types of participants in the TSE market, including Alternative Trading Systems (ATSs). TSE has an ultimate reporting responsibility to the Ontario Securities Commission (OSC).


The board has 14 directors, out of which nine are non-executive directors, out of which three are fully independent under the Combined Code of Corporate Governance. The directors are appointed by a Senior Appointments and Remuneration Committee, which comprises three non-executive directors who are appointed by the board.