Significant progress in implementation of CMP recommendations

The implementation of the Capital Market Masterplan (CMP) progressed according to plan in 2001, despite challenging global economic and financial conditions.

Securities Commission (SC) Chairman, Datuk Ali Abdul Kadir said this in conjunction with the first anniversary of the CMP, which fell on 22 February 2002.

Datuk Ali said of the 152 CMP recommendations, 14 key recommendations have been fully implemented, 24 partially completed and 48 are ongoing. Recommendations that are ongoing refer to those that do not have a definitive timeframe, such as training and education or the development of new products within various segments of the capital market.

He added work is being carried out for other recommendations. These initiatives have been implemented on a timely basis within the timeframe specified in the CMP.

The key CMP recommendations that have been implemented to date include the formation of an independent advisory council – the Capital Market Advisory Council (CMAC) – in March 2001, to provide SC with independent strategic views to facilitate implementation work.

“We are fortunate to benefit from the diverse and rich experience of the CMAC members. In the course of implementing the CMP recommendations, they have provided us with sound advice on issues arising from domestic and international developments and their possible implications on the Malaysian capital market,” said the SC Chairman.

In highlighting some of the major recommendations implemented in the first year of the CMP, Datuk Ali pointed out efforts that were taken to enhance the efficiency of market institutions, towards the creation of a single Malaysian exchange.

These included the merger of KLOFFE and COMMEX in June 2001 to form a single derivatives exchange called MDEX, which was placed under the KLSE Group. Towards the end of 2001, KLSE and MESDAQ also signed an agreement to merge.

Datuk Ali said the demutualisation and listing of the Malaysian exchange would follow as planned and is targeted by the CMP-deadline of 2003.

The first year of the CMP also saw the SC taking steps to further facilitate the stockbroking consolidation exercise by allowing Universal Brokers (UBs) to set up electronic access facilities. In this regard, the SC issued the Guidelines on the Establishment of Electronic Access Facilities in August 2001 to assist UBs in setting up these facilities. As an added incentive, UBs were allowed to give certain discounts for trades executed through the electronic access facilities.

Datuk Ali, in addressing the concerns of industry members in relation to the requirements for Universal Brokers and Investment Banks, said all stockbroking companies including those that are bank-backed are subject to the same policy requirements.

“The SC’s policy on broker consolidation applies equally to all stockbroking companies – including brokers who form part of banking groups that also own a merchant bank.

“We reiterate that all stockbroking companies wishing to become UBs must merge with another three stockbroking companies. Or, if they do not want to become UBs, they will have to merge with at least one other stockbroking company,” Datuk Ali said.

Datuk Ali added, as recommended in the CMP, “All UBs would be allowed to participate in the quotation, issuance and settlement systems in relation to non-listed debt papers subject to them complying with various relevant regulatory requirements.”

To enhance the cost effectiveness of capital market services, the CMP recommended the reduction of transaction costs. Steps in this direction were implemented in July 2001 – the SCANS and SCORE fees as well as the SC levy were all cut as planned.

Additionally, various fees in the derivatives industry were made fully negotiable in December 2001. This exercise involved the futures broking and clearing commission rates, the commission sharing structure between futures brokers and their representatives as well as the shared commission rates between trading members and institutions.

Datuk Ali went on to highlight steps that were taken in 2001 to promote higher standards of corporate governance among public listed companies. In this regard, he said much of the work under the CMP was premised and built upon the recommendations of the Finance Committee Report on Corporate Governance (launched in 1999).

Within this context, the Minority Shareholder Watchdog Group (MSWG or Badan Pengawas Pemegang Saham Minoriti) begun operations and appointed its first Chief Executive Officer in July 2001. The MSWG is founded by Malaysia’s major institutional investors (the Employees Provident Fund, Lembaga Tabung Angkatan Tentera, Lembaga Tabung Haji and the Social Security Organisation).

“The setting up of the MSWG is an important step towards enhancing shareholders rights, especially the minorities. We (the SC) support the maintenance of autonomy in all MSWG operations and decisions and will play a facilitative role to assist the MSWG in achieving its objectives,” said Datuk Ali.

In terms of the move towards a full of disclosure-based regulatory (DBR) regime, Datuk Ali said SC has completed the market readiness study for the introduction of the final phase of DBR and would be releasing the results of this study as well as measures moving forward, soon.

The development of the corporate bond market, another priority area under the CMP, was also given a boost with the introduction of guidelines to facilitate the offering of asset backed securities (ABS) in April 2001.

The SC Chairman said three ABS proposals have been approved by the SC with a total approved limit of RM2.14 billion since the release of those guidelines.

While there has been significant progress in the implementation of a host of CMP recommendations, there were also some initiatives such as the liberalisation of brokerage commission rates for retail trades, which had to be deferred due to various factors, particularly in light of the difficult economic conditions.

Datuk Ali, however, assured that the SC is committed to implementing these initiatives and will continue to review the situation and take appropriate measures in a timely manner. In doing so, the SC will continue to maintain close consultation with industry.

In line with the SC’s commitment towards further enhancing regulatory transparency, the public, including market participants and investors, will be updated on the progress of implementation on a regular and timely basis.

At the same time, a broad-based commitment from all parties involved is vital for achieving the vision of being an internationally competitive market that is highly efficient and supported by a strong and facilitative regulatory framework. In view of this, market participants are encouraged to continue to contribute proactively towards the development of the Malaysian capital market.

The SC Chairman thanked all parties, especially the CMAC as well as members of industry, for their full support and commitment to the CMP implementation process, which he hoped would continue as the SC embarked on the second year of the CMP.

27 February 2002