Speaking after the recently-concluded meeting of the EMC in New Delhi on Thursday, the Chairman of the Malaysian SC, Ali Abdul Kadir, said that the decision to pursue the mandate reflects the seriousness with which emerging securities market regulators view the structural issues that were highlighted by the recent financial crisis. These issues include an over-dependence on the domestic banking system as a source of financing, the need to develop broader and deeper capital markets, including the development of deep domestic bond markets.

In a presentation delivered during a panel discussion on the "Impact and Role of Foreign Institutional Investors in Emerging Markets", the Malaysian SC Chairman reiterated that emerging market authorities must continue to focus on domestic structural and institutional issues.

"An important lesson to learn from the recent crisis is that strong initial conditions underpin a robust financial system," he said.

He said that policy makers in emerging markets must participate in international dialogues to facilitate discussion on and development of appropriate strategies on areas of cross-border concerns.

He also said that attention must focus on improving the transparency of capital flows, possibly through an increased capacity to conduct surveillance on international financial activity.

Ali also explained Malaysia's experience with selective capital controls and the success these measures had in terms of economic recovery.

He added that he was encouraged by the re-inclusion of Malaysian stocks into international benchmark indices.

Endorsement of Malaysia-led study on financial crisis

On a separate matter, the EMC endorsed and approved the public release of a final report based on work led by the Malaysian SC on the issues raised by the financial crisis during 1997-98. The report, entitled "The Causes, Effects and Regulatory Implications of the Financial and Economic Turbulence In Emerging Markets", provides current views on this area and an analysis, which was presented in an interim report by the EMC of the same title in September last year.

The Malaysian SC's work has been acknowledged as being one of the most comprehensive on the East Asian crisis. More significantly, it has been commended for being one of the few reports to examine issues from the viewpoint of capital markets regulation.

This final report noted that the recent crisis has raised significant issues for policy-makers concerning the international financial system, changing regulatory structures, systemic risk management, and the relevance of financial markets within the broader context of macroeconomic management and economic development.

The report is based on input drawn from a survey of emerging markets not only in East Asia but also in Africa, Eastern Europe, the Middle East, South America and South Asia. It was prepared by the EMC's working group on the regulation of secondary markets, which is chaired by the Malaysian SC. Under the chairmanship of the Malaysian SC, the working group has studied and published reports on, among other things, the legal and regulatory framework for exchange-traded derivatives, the legal and regulatory framework for clearance and settlement in emerging markets, and financial risk management in emerging markets.

IOSCO is a world-wide forum for securities regulators that addresses issues and demands related to the regulation of securities and futures markets. Ninety-four national securities regulators form IOSCO's ordinary membership, of which 68 are currently members of the EMC.There are also 51 affiliate members and nine associate members. The Malaysian SC joined the organisation in 1993.