SC Powers Enhanced

SC and investors can take civil action -- New regulatory framework for insider trading -- Responsibilities of directors more onerous

Kuala Lumpur, 1 April 1998

The amendments to the Securities Industry Act 1983 (SIA) and the Securities Industry (Central Depositories) Act 1991 (SICDA) which come into force today will enhance the powers of the SC, while the institution of civil remedies against offenders heralds a new era in Malaysian securities industry regulation.

Securities Commission (SC) Chairman, Dato' Dr Mohd Munir Abdul Majid, said the new amendments address key regulatory principles of investor protection and market integrity.

"The SIA amendments, among others, broaden the definition of insider trading; increase the range of sanctions, including civil sanctions, to deter insider trading and market manipulation; require additional disclosure from directors and chief executive officers (CEOs); and increase the power of the SC over directors and CEOs.

"The SICDA amendments widen the definition of "security" to include unit trust schemes," he said.


Insider Trading
The insider trading amendments broaden the definition of persons that can be caught for insider trading. Firstly, any person who possesses inside information is prohibited from trading in the relevant securities. Secondly, a person who possesses inside information is also prohibited from communicating that information.

Insiders are no longer defined as persons with fiduciary duties such as CEOs or directors but could include all persons who have in their possession information that is not generally available. Such persons may include a member of a director's family, a body corporate which is associated with that director, or a substantial shareholder. In addition, a person who communicates inside information to enable another person to use it for his advantage, the second-mentioned person, known as a "tippee", can also be charged for insider trading.

In the previous definition under section 89 and 90, the definition only applied to an officer, agent or employee of a corporation or officer of a stock exchange.

SC Chairman Dato' Dr Mohd Munir Abdul Majid said that the changes reflect SC's policy objectives.

"The outcome of these new provisions is aimed at enhancing transparency, corporate disclosure and forces the hand on good corporate governance. It will give a positive effect to the SC's plan to move towards disclosure based regulation.

"However, these principles can only be realised if the SC and the frontline regulators, like KLSE and MESDAQ, show the will to ensure that all these changes are enforced when action is needed," said Dato' Munir.

SC Chairman added that the code of conduct of directors and CEOs should also apply to the regulators to boost public confidence.

"The SC has requested the Kuala Lumpur Stock Exchange (KLSE), the Malaysian Exchange of Securities Dealing and Automated Quotation (MESDAQ), the Securities Clearing Automated Network Services (SCANS) and the Malaysian Central Depository (MCD) to amend their internal code of conduct with regard to trading in securities by their employees to ensure that these are in line with the new provisions of the SIA in relation to insider trading.

"The market institutions in the derivatives industry will be similarly advised," he said.

Civil Powers

New sections have been added to the SIA giving the SC or any person who has suffered loss or damage from market manipulation practices and insider trading to bring civil action against the offenders. A case may be brought against the offender even if he has not been charged or proven guilty of any charge under criminal law.

"The objective of these new provisions is to pave the way for more effective enforcement. The ability to institute civil action complements the traditional criminal means and offers a wider range of persons the option of taking legal action against offenders.

"The risk faced by the offender is significantly increased with the lowering of the burden of proof from the criminal standard of beyond reasonable doubt to the civil standard of balance of probabilities", said Dato' Munir.

Civil penalties would allow for full compensation for loss or damages, and the full range of orders available under section 100 of the SIA as well as under the inherent powers of the Malaysian courts. The criminal penalty is imprisonment for a term not exceeding 10 years and a fine of not less than one million ringgit.

"Investors should be aware of their rights in these changes as they are being given a relatively easier option of taking an offender to court without a heavy burden of proof required.

"Where the SC institutes a civil action against an insider, the SC is allowed to recover three times the amount of gain or loss avoided by the insider and claim a civil penalty of not more than RM500,000. The monies collected may, where applicable, be used to compensate investors for their losses," added the SC Chairman.

SC Power Over Company Directors Increased

A new section has been added to the SIA giving SC the power to require a CEO or director of a public company to disclose their interests in securities of a listed company. The SC is also empowered to apply to the High Court to remove any chief executive or director of a listed company who has been declared bankrupt or who has contravened provisions of securities laws or who has been convicted by a court of law for a criminal offence.

In addition, the SC has the power to go behind nominee accounts relating to dealings in securities of listed and unlisted public companies.

"The ability to go behind nominee accounts will enhance the effectiveness of our investigations," said Dato' Munir.

SC Chairman added that the SC plans to conduct lectures/seminars on these amendments to the law to educate the various industry groups on the significance and ramifications of these amendments.

Copies of the amendments to the SIA and SICDA may be obtained from the Government Printers at Jalan Satu, Off Jalan Chan Sow Lin, 50554 Kuala Lumpur.


Issued on behalf of the Securities Commission. Please direct all queries to Corporate Affairs Department at tel. no. 250 7550 (Nafizah Omar) or 259 7164 (Karen Tan).
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