Malaysia’s capital market crosses RM2 trillion threshold

17 March 2011 | Kuala Lumpur

On releasing its Annual Report 2010, Tan Sri Zarinah Anwar, Chairman of the Securities Commission Malaysia (SC) noted that the Malaysian capital market had reached the significant milestone of RM2 trillion as at the end of 2010. She said that the capital market had achieved an annual compounded growth of 11% from RM717 billion in 2000 due to rapid industry expansion and strong regulatory oversight that underpinned investor confidence in the Malaysian capital market.

Equity market capitalization grew by 27% from RM979 billion in 2009 to RM1.2 trillion in 2010 as market sentiment improved on the back of the launch of the new economic programmes. The FBMKLCI also closed at an all-time high of 1,528.01 points on 10 November and has consistently outperformed emerging and advanced market indices. The FBMKLCI rose by 19% for the year, compared to MSCI Emerging Market Index’s 16% and the MSCI World Index’s 10%.

The Initial Public Offering (IPO) market was also buoyant with 29 new listings in 2010. This was double the 14 listings recorded in 2009. The new listings raised RM19.79 billion with Petronas Chemicals Group Bhd having the distinction of being the largest IPO in Malaysia and South East Asia and successfully raising RM12.8 billion in November 2010.

The bond market also recorded steady growth with outstanding debt securities rising by 16.2% from RM653.2 billion in 2009 to RM758.7 billion in 2010. During 2010, the SC approved 52 private debt securities for issuance with a value of RM63.6 billion as compared with 34 approved issues with a value of RM57.5 billion a year ago.

Fund management industry sustains double-digit growth

Assets under management grew from RM315 billion in 2009 to RM377 billion in 2010; a growth rate of 19.8%. The unit trust industry net asset value (NAV) grew by 18.3% from RM191.7 billion in 2009 to RM226.8 billion in 2010. During the year, the SC amended the Guidelines on Unit Trust Funds and Prospectus Guidelines for Collective Investment Schemes to facilitate the introduction of multi-class structures to widen the choice for investors. Two major Real Estate Investment Trusts (REITs) were listed during 2010 with a combined value of over RM4 billion.

Sustained expansion of Islamic Capital Market

The size of the Islamic Capital Market (ICM) now exceeds RM1 trillion, having recorded a growth of 15.2%.

Fund-raising through shariah-compliant instruments, continued to retain its popularity. The SC approved 21 sukuk issues with a value of RM40.3 billion; which accounted for 63.4% of total bond approvals in value in 2010.The Sukuk musharakah represented RM16.7 billion or 42.1% of total sukuk approvals.

Malaysian intermediations continue to expand presence in the markets. CIMB Islamic played a leading role in the landmark US$500 million foreign currency sukuk issued by the Islamic Development Bank in December 2010. Prudential Fund Management Bhd became the first Malaysian intermediary to take advantage of the mutual recognition agreement with Dubai for cross-border distribution of Islamic funds and launched its Prudential Shariah Opportunities-Asia Pacific Equity Fund in December 2010.

The number of Islamic fund management companies also increased to 15 with the approval of four new Islamic fund management licences.

Vigilant supervision and effective enforcement

During the year, the SC intensified its prudential and conduct supervision of market institutions and intermediaries and enhanced its oversight functions. There were increased engagements with intermediaries and PLCs over a broad range of regulatory concerns including client asset protection requirements with the fund management industry, the governance structures, internal audit and risk management functions of bond trustees and the reporting on assets by custodians.

The surveillance framework was considerably enhanced with market-wide indicators and new surveillance tools established to facilite early detection of trading irregularities. The SC also increased communication of its regulatory concerns through sharing its supervisory findings to ensure greater collaboration to strengthen industry standards. In 2010, 29 administrative sanctions were meted out against intermediaries for various misconduct, breaches of licensing conditions, and breaches of the take-overs and mergers provisions.

ENFORCEMENT RECORD 2010

Restitution

Froze accounts under AMLA and restituted RM2.2 million to Australian investors in Cambridge Capital Trading scam
Restituted RM30 million to investors in Swisscash scam

Convictions

Former Director of Oasis Asset Management, Muhammad Khalid Ismail, jailed 1 year for concealing records and failure to maintain a trust account for investments received and 2 years imprisonment for CBT
Phazaluddin Abu sentenced to 4 years imprisonment for operating a ponzi scheme
Former Directors of MEMS Technology jailed 6 mths and directors of Welli Multi Corp Bhd fined for submission of misleading financial statements

Convicted former MD of Granasia Corp Bhd over false IPO statements
Secured sentence against a former Director of Fountain View and remisier for market manipulation

Criminal prosecution

Charged Liqua Health Corp Bhd’s former business coordinator for fraud and Liqua’s former MD for abetting
Charged LFE Corp Bhd’s former director for fraud and Linear Corp Bhd’s director for abetting
Charged 3 directors of Inix Technologies Holdings Bhd for false statements
Charged two persons for failure to appear before the SC to be interviewed in relation to the Inix Technologies investigations

With respect to criminal cases, the SC secured 15 convictions and completed five civil proceedings. The SC also handled 39 criminal prosecutions and obtained more than RM32 million in restitution, costs and fines, and had RM10 million in assets frozen. Among these, two custodial sentences were secured to provide a deterrent against capital market offences. This includes a four-year custodial sentence against a businessman after he was convicted of operating an online investment scam without holding a fund manager’s license.

Strengthening the investor protection framework

The Audit Oversight Board (AOB) commenced operations on 1 April 2010 and by the end of year it had already conducted inspections of six audit firms and issued inspection reports to require timely remediation of identified deficiencies. The Audit Oversight Board was admitted as a member of the International Forum of Independent Audit Regulators in September 2010, making Malaysia the second country from ASEAN to be a member.

The standards of disclosure and independent advice was further strengthened through the updated Guidelines on Offer Documentation of the Malaysian Code on Take-overs and Mergers. The Securities Industry Dispute Resolution Center (SIDREC) was incorporated in July 2010 and will be able to provide speedy and free arbitration for small claims disputes. The reach of the SC’s investor education programme was further expanded to over 43,500 participants in 2010.

New market opportunities from cross-border regulatory arrangements

New market opportunities were initiated through various cross-border regulatory arrangements to facilitate domestic intermediaries to expand their operations across borders as well as to promote greater inflows into Malaysia’s capital market.

The SC secured China’s approval for Malaysia to be recognised as an approved investment destination under China’s Qualified Domestic Institutional Investor (QDII) scheme administered by the China Banking Regulatory Commission (CBRC) in June. Malaysia became the first emerging market and second ASEAN country to be placed under the QDII scheme. The QDII programme allows Chinese nationals to invest in overseas markets through approved institutions such as securities companies, fund management companies, commercial banks, trust companies and insurance companies. Approved institutions regulated by the Chinese banking regulator and securities regulator may now invest funds pooled from their clients into Malaysian securities including equities, fixed income products and collective investment schemes approved by the SC. These institutions may also engage the services of licensed Malaysian fund managers to assist with QDII investments.

On 22 June, the SC secured the United States Commodity Futures Trading Commission (US CFTC)’s approval permitting trading participants (futures brokers) of Bursa Malaysia Derivatives Berhad (BMD) to solicit and accept orders and customer funds directly from US customers without the need to register separately as a futures broker in the US. This approval was issued in relation to Regulation 30.10 of the US Commodity Exchange Act and was premised on the assessment that Malaysian futures brokers were subject to internationally-comparable customer protection standards. Bursa Malaysia Sdn Bhd and Bursa Malaysia Bonds Sdn Bhd are recognised by the US as a Designated Offshore Securities Market.

The SC signed a Memorandum of Understanding (MOU) with the Capital Markets Board of Turkey (CMB) to pave the way for closer regulatory collaboration to facilitate greater cross-border flows between the two countries. Under the MOU, the SC and CMB will exchange information to facilitate supervision and enforcement and to exchange technical knowledge and collaborate in areas of mutual interest. The SC also signed a MOU with Qatar Financial Markets Authority to strengthen the relationship between Malaysia and Qatar and foster closer regulatory ties and cooperation. A collaborative agreement was also signed with SEBI (India) to further reinforce SC and SEBI’s commitment to collaborate in promoting cross-border flows between the two markets.

The FTSE upgraded Malaysia to an advanced emerging markets status within the FTSE’s Global Equity Index series; underlining global recognition of the regulatory framework of the Malaysian capital market.

Enhanced organizational capability and effectiveness

The challenges of the changing market landscape require a deepening of skills sets to strengthen regulatory capacity, the increased use of information technology and continuous streamlining of the SC’s internal processes and systems.

The SC has implemented programmes to nurture a high performance culture and several IT initiatives to enhance business and operational efficiency. These include creating an integrated corporate database and enhancing monitoring and analytical tools for supervision, enforcement and policy research purposes.

Priorities for 2011

It is critical to further strengthen the positioning of the capital market to meet the future fund-raising requirements for the Economic Transformation Programme (ETP) as well as meet national aspirations for socially inclusive and sustainable growth.

Towards this end, the private pension scheme framework will be launched to complement the existing mandatory pension scheme and provide greater choice for contributors to augment their retirement savings.

Work is also progressing smoothly on a new five year corporate governance blueprint and the ten-year Capital Market Masterplan 2 (CMP2) that are intended to articulate Malaysia’s strategies and agenda for the development and regulation of the capital market for this decade.

In view of the recent resurgence in volatility in global markets, the SC will give priority to intensifying its surveillance of market conditions and will continue to place emphasis on strengthening intermediary resilience to potential risks from the external environment.

SECURITIES COMMISSION MALAYSIA