YBhg Dato’ Md Nor Yusof
Chairman, Securities Commission
Emerging Markets Programme 2004
3 – 8 October 2004
Securities Commission, Kuala Lumpur
Distinguished guests, ladies and gentlemen:
Good morning and welcome to Malaysia.
This is the 5th time that the Securities Commission has conducted the Emerging Markets Programme and we are pleased to have you here with us this year. The EMP’s main objectives are to share experiences and ideas to better equip us with the practical knowledge of issues affecting developing and emerging capital markets. We in the SC realize that the experience and concerns of emerging markets may sometimes vary considerably from those of developed markets, and thus felt the need to establish a platform whereby emerging markets could learn from one another. At the same time, the EMP draws on the support of securities regulators from the developed markets as well, which will enable you to benefit from the experience and perspectives of senior regulators from jurisdictions such as Australia, Hong Kong and the US. The SC extends its appreciation to our invited speakers who have journeyed far to share their expertise and knowledge with us.
The SC is also proud to inform you that the EMP has, this year, received accreditation from the Malaysian Government’s Technical Cooperation Programme that is implemented by the Economic Planning Unit. Today, the Technical Cooperation Programme has been expanded from the initial ASEAN countries, to include 133 countries representing nine regions in the world. The EMP’s inclusion into the government’s programme is indeed recognition of the quality and contribution of the EMP as an effective training platform for the securities sector.
The EMP is an interactive programme. It is a programme that follows a discussive format and facilitates progressive thinking. I would encourage you to participate actively in all the sessions and freely voice your thoughts, ideas and to challenge the norm in order to gain maximum benefit from the programme and the excellent blend of securities regulators gathered here.
Ladies and Gentlemen,
The theme for the programme this year is “Enhancing the effectiveness of regulatory structures”. Regulatory authorities of both developed and emerging markets the world over constantly grapple with the dynamic market environment and the design of an appropriate and responsive regulatory framework. You will have heard the oft-quoted phrases of “regulatory balance”, “the cost and benefit of regulation”, “the art of regulation”, “the regulatory craft”, “regulatory burden” and so on.
Put very simply, each regulator faces the task of putting in place and implementing a regulatory framework that is suitable for its market at its particular stage of development, with capabilities for future enhancements or changes as the market grows. Of course, as a citizen of the world, there are international standards and best practices to be met if a market is to be accepted as sound, attractive and investable.
It is therefore important to constantly remind ourselves what the purpose of securities market regulation is. It is incumbent upon governments and market participants to continually question whether capital markets are performing at their best, and particularly, whether the policy and regulatory frameworks that govern them foster long-term growth and competitiveness as well as they should. Sound regulation is imperative to assure market transparency and fairness so as to inspire investor participation and allocation of capital to its most productive ends.
The challenge for lawmakers and for regulators, of course, is to find the appropriate mix of tools and rules to promote the interests of all securities market participants. Prospects for capital markets are founded on maintaining high levels of investor confidence in the integrity of markets. An unregulated securities market will not generally be competitive or efficient. Markets may have financial incentives to engage in anti-competitive or restrictive trade practices. Market intermediaries may enter into collusive agreements that inhibit entry to the market. Market failures can prevent competitive markets from delivering efficient and socially beneficial outcomes. In addition, unregulated but competitive markets may be unstable and excessively volatile. Poor corporate conduct and bad governance can destroy the value of investors’ shareholdings overnight.
Conversely, over-regulation can result in added cost – either direct costs that have to be borne by investors or intermediaries – or indirect costs in terms of greater administrative burden or reduced efficiency in the capital market.
The regulator occupies an unenviable position in today’s corporate environment – it must ensure that the securities market operates in an orderly and lawful manner while protecting investors, but at the same time regulate to such a very precise extent that industry cannot accuse the regulator of over-regulating, and killing the innovation and profitability of business. Very difficult indeed.
At the Malaysian Securities Commission, we do take the view that too much regulation may be bad for the industry as it may stifle enterprise and risk-taking, hence our guiding principle is “no more regulation than necessary”. Our approach has been that market regulation requires flexibility to facilitate innovation and growth, yet address investor protection and prudential concerns effectively. Markets will deliver economic efficiency where market based decision making is not unduly inhibited, competition is allowed to thrive and where participants have confidence in the integrity and safety of the financial system. In this vein, the regulatory framework should set out the appropriate balance between pursuing regulatory goals and allowing the private sector to take risks that will encourage innovation and competition with the recognition that some risks will result in failures and losses, as consistent with a market driven environment. At the same time, a commitment to sound, transparent and facilitative policies is essential to the capital market’s integrity and reputation for fair and transparent regulation.
This year’s EMP emphasises the importance of regulation, and more significantly, seeks to canvass issues surrounding the effectiveness of regulation.
Ladies and gentlemen,
The regulatory structure and vision for the capital market in Malaysia have evolved over time. We have experienced the hard lessons of the Asian crisis and seen the erratic behaviour of investors. We asked ourselves searching questions – what kind of market do we want to see Malaysia developing into in five or ten years’ time? How do we ensure that quality companies continue to be attracted to raise funds in this market? How do we ensure that there isn’t a slow or sudden drain on liquidity in the market through migration of issuers and investors abroad? How do we maintain the integrity and discipline of all market participants in an increasingly dynamic environment?
The Capital Market Masterplan articulates Malaysia’s long-term strategy to manage these issues prudently and in a way that is suitable to our capital market development. Of course, the CMP is not the be all and end all. Objectives and strategies no doubt have to go through a continuous process of review and re-assessment, taking into account developments surrounding us. But importantly, the Masterplan provides every player in the capital market with a clear roadmap, a planned path towards which we intend to progress.
The first phase of implementation of the Masterplan which spanned from 2001-2003 focused on enhancing the governance and regulatory framework which would ensure high levels of market integrity, strengthen prudential standards and diversify market sources of financing to ensure system stability and resilience. The Malaysian capital market now has a sound regulatory framework, which can be benchmarked with international standards, with a sound market infrastructure and financially resilient intermediaries. The foundation-building phase is complete.
The current challenge in the capital market is reflected in the focus on three priority areas: namely enhancing liquidity, value creation and global networks. These goals have a high value-added content. Their achievement requires fostering a conducive environment to facilitate a shifting of the engine of growth to the private sector. Many initiatives have been introduced towards this end, which I am sure you will hear more of throughout this programme.
Ladies and Gentlemen,
Let me not keep you any longer from the programme prepared for you. I wish you a productive programme, and a memorable stay in Kuala Lumpur.