• Provides greater competition;
• Changes the role and function of intermediaries;
• Accelerates market globalisation; and
• Creates better and well informed investors;

Provides greater competition
It is envisaged that Electronic Commerce would intensify competition among market participants, including exchanges, fund managers, advisers and individual traders. This can be seen with the technological developments made by well established exchanges and brokerage houses locally and around the world. For example, the Chicago Mercantile Exchange (CME), one of the largest and most successful futures exchange in the world that uses an open out cry trading system, has been operating GLOBEX, the after-hours electronic trading system to ensure that it will be able to provide a competitive market in terms of an extended trading hours and providing access to other markets for its users. The use of Electronic Commerce applications among the brokerage houses has also increased, such as the electronic broking systems which provide on-line real time price information, order routing, trade enquiries, account monitoring and in-house market research. The competition in this area of the market is growing and it has been estimated that the number of on-line accounts will grow from about 1.5 million in 1996 to 10 million by 20011 .

Changes the role and function of intermediaries
The introduction of Electronic Commerce could also affect the existing role and function of market institutions and intermediaries. This can be seen with market institutions and intermediaries offering similar services, and the emergence of new market institutions in the capital market, some of whom may used to play a supporting role in the capital market. The electronic broking system provides a good example where the function of market intermediaries may overlap with the traditional function of a market place such as an exchange. For example, in the United States, brokerage houses such as Charles Schwab & Co and E-Trade are able, through their on-line trading facilities, to directly route client's orders to the exchange. This is, in a way, an extension of an exchange's trading facilities.

Accelerates market globalisation
The market globalisation processes would be accelerated by Electronic Commerce as it will allow easy, efficient and cost effective access to other markets, through the use of such technologies such as personal computers, network computers and personal digital assistants (PDA). In the case of GLOBEX or Instinet, they are able to bring markets closer to each other by linking hundreds of terminals into an instantly interactive worldwide network, extending through multiple time zones and financial centres. This would also remove or reduce structural barriers in the sense that trading practices between different markets are likely to conform to some form of a common standard of trading practices or conduct, and settlement cycle. This is illustrated in a recent development between CME, SBF-Paris Bourse (SBF) and MATIF in France where they have entered into an agreement to swap and enhance their trading and clearing settlement systems with the intention of harmonising and standardising their financial market systems.

Creates better and well informed investors
The availability of Electronic Commerce applications would not only benefit market institutions and intermediaries, but investors as well. Electronic Commerce applications enable investors to have access to greater amount of market information which could assist them in making a better and well informed investment decision. With the proliferation of all sorts of goods and services offered over the Internet, investment advisers are not far behind and almost every type of investment adviser has emerged over the cyberspace. Among the services provided by these investment advisers are quotes on stocks, options, commodity futures, mutual funds and bonds. Prodigy, an on-line access provider, estimates that some 50% of its one million users access the financial forum and features.

Regulatory Issues
Electronic Commerce will have a profound impact on the existing regulatory framework. The Government and market regulators, including the Commission, have to seriously review their existing policies and regulations. Some of the capital market activities that will require an immediate review of the regulatory framework governing those activities are:

• Primary market offering of securities by electronic means;
• Offering of stock market facilities by electronic means;
• Offering of brokerage services by electronic means; and
• Cross border offering of capital market products and services.

Primary market offering of securities by electronic means
In Malaysia, it is possible to make primary offering of securities by electronic means such as through Internet offerings, subject to compliance with the relevant statutory provisions under the Securities Commission Act 1993 and the Companies Act 1965. Although the Commission views an offering on the Internet that is accessible within Malaysia is an offer that is caught by section 32 of the Securities Commission Act 1993, the Commission may take into consideration a number of factors such as the intention of the person making the offer, the penetration of the offering in Malaysia, and the involvement of Malaysian residents in making the offer when assessing whether the offering would fall within the ambit of section 32. At the moment the Commission has yet to decide whether to subject Internet offerings to the rigours of section 32 of the Securities Commission Act 1993 or to exempt such offerings.

In relation to electronic prospectuses, it seems to fall out of the Companies Act 1965 as its language does not envisage the delivery of information by electronic means. However, the regulatory framework under the Companies Act 1965 is flexible enough to allow for electronic prospectuses. For example, the powers of exemption under section 47A of the Companies Act 1965 could be exercised by the Minister to exempt electronic prospectuses from the requirements of the Companies Act 1965.

Offering of stock market facilities by electronic means
In relation to offering of stock market facilities by electronic means, it is submitted that any alternative trading system, electronic or otherwise, that operate in Malaysia would either have to be exempted under section 7 of the Securities Industry Act 1983 or approved as a stock exchange under section 8 of the Securities Industry Act 1983. The Securities Industry Act 1983 confers upon the Minister a power to exempt a person from section 8.

Offering of brokerage, fund management and investment advice services by electronic means
The offering of brokerage, fund management and investment advice services by electronic means are simply an extension of traditional brokerage, fund management and investment advice businesses. This would mean that a person offering such services through electronic means would also have to comply with laws governing the conduct of such business. For example, the Securities Industry Act 1983 and the Futures Industry Act 1993 require a person who provides brokerage, management or advisory services to have a reasonable basis when making a recommendation to his client. In order to do so the person is required to have regard to the client's investment objectives, financial situation and particular needs.

In the case of offering of brokerage services through electronic means, a broker would have to arrange his business so as not to amount to establishing a stock or futures market. To enable stockbroking companies in Malaysia to offer electronic brokerage services throughout Malaysia, the Commission is preparing a set of guidelines for the setting up of electronic brokerage operation within the parameters of the securities laws. At the moment electronic brokerage services offered in Malaysia are confined within a geographical limit set out in the licence given under the Securities Industry Act 1983.

Cross border offering of capital market products and services by electronic means
Electronic Commerce has enabled providers of goods and services from outside the jurisdiction to have access to persons within the jurisdiction. It is submitted that domestic laws and regulations need to be reviewed to enable the Commission to perform its functions. The licensing framework can be cited as an example of a domestic law that will have to be reviewed in view of Electronic Commerce as it was designed based on the assumption that market intermediaries need to be physically present in a jurisdiction to conduct their businesses. This would present the Commission with several challenges such as the enforcement of securities laws. Towards this, the Commission is presently studying whether existing securities laws should be amended to enable the Commission to effectively enforce these laws.

The international and borderless nature of the Internet makes the Commission's role to protect investors a more difficult task. At the moment it is uncertain whether an offering that originates from another jurisdiction that is available in Malaysia would be an act that is committed within Malaysia and therefore subject to the Malaysian regulatory framework. Even if the act is considered subject to the Malaysian regulatory framework, the enforcement of the relevant provisions may also be difficult. One of the immediate solutions is to enter into agreements for international co-operation with various other regulatory authorities. The Commission is currently actively developing links for mutual co-operation with other regulatory authorities, including taking an active role in the discussions of the International Organisation of Securities Commissions (IOSCO) on issues relating to the impact of Electronic Commerce on the regulation of the securities markets.

The Way Forward
The Malaysian capital market needs to be driven through coordinated efforts by both the policy makers and industry players. In view of this, the Commission proposes that a framework for the orderly and effective implementation of Electronic Commerce in the capital market be developed in the near future. The main components of the framework should address the following inter-related issues:

• Public policies and the technology gap;
• Laws, regulations and market intermediary rules;
• Technology applications; and
• Industry education and awareness.

Given the rapid pace of technological advances that we have witnessed in recent years, these issues would need to be addressed in tandem.

Public policies and the technology gap
One major issue of concern is the potential widening of the gap between public policies at one end and technological advancement at the other end. In the past, this may not have been as critical as it is today given the pace of capital market development then. However, in the age of information technology, the pull in the opposite directions cannot be allowed to occur for the following reasons:

• The pace of change in technological development is accelerating to the extent that what can be termed as state-of-the-art or cutting edge technology today can become obsolete tomorrow;
• Traditional market roles and practices may have to be relooked at, rethought and possibly replaced to cater for technological innovations which are getting more sophisticated; and
• The number of technology users is also increasing at a rapid pace; for example, it is estimated that there would be over 250 million Internet users by the year 2000, compared to a handful of users in the early '80s.

There is, therefore, a need to ensure that the implementation of public policies should be in line with the development of technology. The inability to coordinate both of these crucial elements may have adverse effects on industry in the long run, due to the following factors:

• As Electronic Commerce increasingly becomes a more dominant feature in the capital market, participants and investors would look at the legal and regulatory framework for consistency and certainty, to give them confidence that they are involved in lawful trading activities, and that their rights are well protected;
• In the absence of regulatory certainty, market innovations and developments would occur anyway; but they may migrate to other markets without appropriate recognition which would stifle development in the local market; and
• Electronic Commerce would accelerate market globalisation and without a framework that fully accommodates Electronic Commerce, Malaysia could easily be edged out of the international scene.

Laws, regulations and market intermediary rules
From a broad perspective, the formulation of appropriate laws has been addressed in the cyberlaws which have been introduced to support the MSC. More specifically, the cyberlaws affecting Electronic Commerce are the Computer Crimes Act, Digital Signature Act, Multimedia Convergence Act and amendments to the Copyright Act. However the legal framework for Electronic Commerce in the capital market should also entail a review of the existing securities and companies laws. The laws need to be supplemented by subsidiary legislations and regulations, whose shape and contents are likely to be determined by policy considerations to act as a guide in the implementation of Electronic Commerce.

In addition to laws and regulations, market participants are also governed by business rules and code of conduct. For example, the issue of interoperability among electronic payments systems could be addressed to a certain extent by developing specific policies concerning standards for smart cards. Specific policies would also be required to ensure the safety and soundness of the electronic delivery and payment systems in order to protect consumers and market operators.

Technology applications
Technology applications for Electronic Commerce are being addressed under three MSC Flagship Applications i.e. Borderless Marketing, Multi-Purpose Card and Electronic Government. The development and enhancement of technology applications for the capital market will be a continuous and on-going process, in line with the rapid change in technology. Thus what would be required here is for regulators and industry participants to keep abreast of the technological developments to determine how it can be applied to the capital market for further development and increased efficiency.

Industry education and awareness
Fundamental to any market developmental programme is the issue of education. While industry participants and policy makers are focusing their efforts to create an environment that is conducive for the development of Electronic Commerce, such efforts would not be sustained in the longer term if no provision is made to educate and promote awareness of the potential of information technology in the capital market among the general public. This could be achieved via a two-pronged approach: one, by inculcating an IT culture for the young, and two, by encouraging market institutions to invest or fund the provision of such educational programmes.

In relation to this, the introduction of the Smart School as one of the Seven Flagship Applications in the MSC is without doubt a step in the right direction; which is in line with the government's efforts to create a technology-literate society. At the same time, there is also the need to create awareness and understanding of this issue among the existing market participants. Investing in IT education by market participants would certainly contribute towards creating such awareness.

Conclusion
As a conclusion, the expanding role of information technology in the capital market today and in the future is a matter of utmost importance. Recent technological developments around the world would suggest that it may become a prominent feature in the capital market, and that may necessitate structural and regulatory changes. The success of the implementation of Electronic Commerce in the capital market would not only depend on the level of technological innovation but also on the ability to create an environment that is conducive for Electronic Commerce in a cohesive and coordinated manner.

The Commission fully supports the development of Electronic Commerce in the capital market due to the enormous benefits that it will bring to the market place in creating greater competition and efficiency. Electronic Commerce would also provide the market with a natural platform for further innovation and would facilitate the orderly development of the capital markets. Electronic Commerce is likely to be an inevitable feature of the capital market in the near future and ignorance of its potential impact may be detrimental to the development of the Malaysian capital market in the long term.

The Commission would welcome any comments on all aspects of this Discussion Paper. This will enable the Commission to take into account other issues which have not been highlighted in this paper when conducting further study on Electronic Commerce in the Malaysian capital market.