SC revises capital framework for stockbroking companies


The Securities Commission (SC) today announced revisions to the capital framework for stockbroking companies. These revisions will take effect from 1 November 2004.


The revisions are intended to provide the stockbroking industry with greater flexibility in managing their capital requirements vis-à-vis their business activities and to enhance their overall competitiveness, while preserving the prudential standards of the framework.


These revisions are made following engagement with Bursa Malaysia Berhad and the Association of Stockbroking Companies in Malaysia, and after conducting jurisdictional studies to ensure compatibility with international standards.


The revised capital framework will be included in the Rules of Bursa Malaysia Securities Berhad (Bursa Malaysia). Details of the revisions are listed in the table below.








































Area


Existing Requirements


New Requirements


Minimum paid-up capital




  •   RM20 million for non-Universal Brokers (non-UBs) licensed before 1997 and RM100 million for non-UBs licensed after 1997



  •   RM250 million for Universal Brokers (UBs)




  •   RM20 million for non-UBs



  •   RM100 million for UBs


Minimum core capital




  •   RM250 million for UBs




  •  Subject to Rules of Bursa Malaysia where every Participating Organisation’s (PO) core capital must be greater than its operational risk requirement


Minimum shareholders’ funds unimpaired by losses




  •   No specific requirement




  •   RM20 million for non-UBs



  •   RM100 million for UBs


Large exposure risk requirement to single equity




  •   The threshold for computation of large exposure risk requirement (LERR) for exposure to single equity is based on 5% of the total size of issuance.



  •  Full value on the position risk factor (PRF) for computation of LERR for single equity held as collateral.




  •  The threshold for computation will be increased from 5% to 10% of the total size of issuance.



  •  To apply a discount of 70% on the PRF for computation of LERR for single equity held as collateral.


Definition of single equity for large exposure risk requirement


Where a PO has an exposure in excess of 20% of the issuer’s capital, the PO shall be deemed to be an associate of the issuer.


Only exposure arising from a PO’s investment in the stock accounts under Rule 1105.8(5)(c)(iii) will be used to ascertain whether a PO has an exposure in excess of 20% of the issuer’s capital.


Operational risk requirement


A PO authorised by Bursa Malaysia to carry out all types of permitted business shall apply a minimum operational risk amount stipulated under category A of Schedule 8B of the Rules of Bursa Malaysia.


A PO :









(i) whose business activities are limited by Bursa Malaysia to agency business, principal securities trading, sub-underwriting
(ii) who has, or may have, subsidiaries involved in exchange traded futures and options

shall apply a minimum operational risk amount stipulated under category B of schedule 8B of the Rules of Bursa Malaysia.


The previous categorisation which is based on the type of allowable business will be replaced by the categorisation of non-UBs and UBs.


Liquid capital


Bursa Malaysia’s approval is required for the inclusion of liquid asset charged to 3 rd party, for the purpose of raising funds from a 3 rd party, on an arm’s length basis, for use exclusively in the PO’s business.


Bursa Malaysia’s approval is not required. However, PO is required to inform Bursa Malaysia and make full disclosure on compliance with the necessary conditions stipulated by this Rule.


Position risk on suspended securities


Presently comprises:-




  •   Voluntary Suspension
    The position risk requirement for voluntarily suspended securities shall be calculated by applying the applicable position risk factor prescribed in Schedule 8C of the Rules of Bursa Malaysia, to the mark to market value of the securities.



  •   Compulsory Suspension
    The position risk requirement for compulsorily suspended securities shall be calculated by applying the applicable position risk factor prescribed in Schedule 8C of the Rules of Bursa Malaysia , to the mark to market value of the securities.


The valuation is based on the Last Done Price for securities suspended for a period of 3 or less market days .



SECURITIES COMMISSION
28 October 2004