The equity market increased by 2.6% to RM1.70 trillion from RM1.65 trillion in 2014, while the bond and sukuk market grew by 1.4% to RM1.12 trillion, according to the Securities Commission Malaysia (SC) in conjunction with the release of its 2015 annual report.

The Malaysian capital market continued to be a major source of financing with RM90 billion raised through the primary market for the fourth consecutive year. A total of RM86 billion was raised through bonds while RM4 billion was raised via initial public offerings (IPOs). An additional RM17 billion was also raised through the secondary equity market.

“The capital market’s ability to remain resilient while maintaining public trust and investor confidence in a challenging global climate attests to the continuous efforts that have been put into strengthening its regulatory and institutional foundations. This includes well-developed intermediation capabilities and a large domestic institutional investor base, enabling efficient capital mobilisation and providing a buffer against external volatility,” said Dato’ Seri Ranjit Ajit Singh, Chairman of the SC.

The size of the Islamic Capital Market (ICM) grew 6.7% to RM1.70 trillion in 2015, compared to RM1.59 trillion in 2014. The market capitalisation of Shariah-compliant securities reached RM1.09 trillion in 2015, representing 64.1% of the total market capitalisation. Malaysia continues to be the global leader in the sukuk market, accounting for 54.3% of the global sukuk outstanding as at end-2015.

The fund management industry registered a 6% growth with assets under management (AUM) rising to RM668 billion in 2015 as compared to RM630 billion in 2014. Unit trust funds, which maintained overall net sales of RM17.8 billion, reached RM347 billion in net asset value (NAV) as at end-2015.

Private Retirement Schemes (PRS), which was introduced three years ago, achieved a significant milestone in 2015 when its NAV crossed the RM1 billion mark to reach RM1.2 billion. The number of PRS members has increased substantially to 180,651 which represent a 40% increase from December 2014.

Maintaining Market Integrity

In view of increased volatility and risk of market abuse, SC’s surveillance was heightened to maintain market integrity and prevent misconduct. Thematic reviews were conducted on electronic trading of securities, trading of low-priced securities and structured warrants to identify and address potential risks in the market.

The SC’s supervisory efforts for 2015 were focused on enhancing culture and conduct of licensed intermediaries. 78 supervisory assessments were conducted while mystery shopping was also carried out to evaluate the sales practices of intermediaries. The Audit Oversight Board (AOB) inspected 12 audit firms and selected 35 individual audit partners for assessment, resulting in the commencement of enforcement actions against two audit partners and two audit firms.

To promote good governance and compliance culture amongst directors of licensed intermediaries, the Capital Market Director Programme was launched. To date, over 300 company directors and senior management have attended the programme.

The SC continued to seek credible deterrence with 219 criminal charges preferred against 16 individuals for insider trading while 41 administrative sanctions were imposed on firms and individuals for breaches of various guidelines. The seriousness of capital market offences was recognised by the courts when CEOs, directors and audit partners who breached securities law were sentenced to imprisonment terms ranging between 12 to 18 months. Civil enforcement actions were also instituted against five individuals for insider trading breaches while six others were required to disgorge an amount of over RM3 million for restitution to investors.

Investor Protection Initiatives

In order to enhance the integrity and reliability of information in disclosure documents, the Capital Markets & Services Act 2007 was amended to prohibit the use of clauses to restrict or limit liability for false or inaccurate information.

To enhance the quality of financial statements disclosures, the Prospectus Guidelines were also amended to include a new requirement for a “true and fair” audit opinion in relation to financial information disclosed in prospectuses, replacing the previous requirement for pro-forma financial information.

To widen investors’ access to the capital market dispute resolution mechanism, the scope of the Securities Industry Dispute Resolution Center (SIDREC) was extended to include disputes and monetary claims arising from the sale and distribution of PRS. SIDREC’s claim limit was also increased from RM100,000 to RM250,000 effective 1 December 2015.

Investor education remains a core focus of the SC’s investor protection ecosystem. Besides reaching out to investors through on the ground programmes such as InvestSmart and “SC In the Community”, SC also extended its reach with the use of digital channels, including the InvestSmart App and Facebook.

Regulatory Reforms

As part of a multi-year reform programme, the regulatory framework was reviewed to improve market efficiencies and facilitate innovation.

One of the major outcomes of this reform programme is the introduction of the Lodge and Launch Framework to liberalise the approval regime for wholesale products. Five different product guidelines were also consolidated into a single guideline to provide a single source of reference for issuers and distributors.

In order to enhance the competitive positioning of the fund management industry, the SC also liberalised its rules to allow for the establishment of boutique fund management companies through a more facilitative structure.

One of SC’s key market development efforts are initiatives around innovation including the use of financial technology (FinTech). In February 2015, Malaysia became the first country in the region to introduce a legal framework to facilitate Equity Crowdfunding, where six platform operators have been registered. An Alliance of FinTech Community or aFINity@SC, was established to link innovators, institutions and facilitators together to catalyse the development of digitisation of market solutions in Malaysia.

International Priorities

In recognition of SC’s leadership and contributions at the global level, the International Organization of Securities Commissions (IOSCO) approved the establishment of its first regional office in Kuala Lumpur. This is IOSCO’s first international presence outside its headquarters in Madrid, Spain.

Malaysia completed its Mutual Evaluation Exercise conducted by Financial Action Task Force (FATF) and Asia Pacific Group on Money Laundering (APG) in 2015. Malaysia’s financial sector regulatory framework was found to be highly compliant with FATF’s 40 recommendation. Following the assessment, Malaysia was recently admitted as a full member of FATF.

SC as the Chair of the ASEAN Capital Markets Forum (ACMF) continued to spearhead regional initiatives to achieve greater market interconnectivity. During the year, 12 funds in the region were authorised as Qualifying ASEAN Collective Investment Scheme (CIS) under the ASEAN CIS framework which was introduced in 2014.

Focus in 2016

The SC will continue its regulatory reform to enhance market efficiency while emphasising good governance and conduct. It will also encourage innovations to broaden market access and efficiencies. Major initiatives include:

• Launch of new Corporate Governance (CG) Code: The SC will formulate CG priorities for the next five years with a revised Malaysian Code on Corporate Governance 2016, which is set to be launched following a public consultation in April. 
• Introduction of the Peer-to-Peer (P2P) Lending Framework in the first half of 2016: The SC will continue to leverage on technology to offer innovative market-based financing solutions. P2P Lending would improve access to capital for SMEs and small businesses, in tandem with mainstream financing options currently offered by traditional financial institutions and co-operatives. 
• Next phase for corporate bond and sukuk market: Efforts towards centralising information to enhance transparency, widen information access to investors and promote secondary market liquidity, as well as measures to expand the offering of bonds and sukuk to the retail market. 
• Islamic Fund and Wealth Management (IFWM) Blueprint: Capitalising on the country’s leadership in the Islamic fund management industry, the SC has formulated an IFWM Blueprint for Malaysia, which will be launched in 2016.