SC studies market readiness for full disclosure-based regulation

Kuala Lumpur, 2 April 2001

The Securities Commission (SC) is embarking on a study to assess market readiness for the implementation of full disclosure-based regulation (DBR).

The study will provide critical input for the SC to determine if market participants are ready to move to full DBR. This will be the second study undertaken by the SC on this subject.

The first market perception study undertaken in 1999, prior to the implementation of Phase 2 of DBR, showed that capital market participants were generally positive about the SC's initiatives to change the regulatory framework governing the issue, offer and listing of securities from merit-based regulation (MBR) to DBR.

In carrying out the 2001 study, the SC will in part be sending out questionnaires to, and conduct interviews and focus group discussions with, the various capital market participants which include listed companies, advisers and investors. The study is expected to be completed by the first half of this year.

DBR is a market-based approach to regulation which focuses on the quality of information disclosed by issuers when they issue, offer or list securities so as to enable investors to make informed investment decisions. Under DBR, the securities regulator does not assess the merits and suitability of an offering.

This is different from MBR, where the approach taken by the securities regulator is on assessing the quality and merits of an issue, offer or listing of securities. The regulator interposes itself between those seeking to raise funds and those seeking to invest.

DBR is expected to enhance the efficiency and transparency of the capital market while maintaining investor protection. For DBR to be effective, high standards of disclosure, due diligence and corporate governance must permeate in the capital market.

The SC’s shift from MBR to DBR began in 1996 under a three-phased process. The SC is presently under Phase 2 of the shift, whereby, in considering applications for the issue, offer and listing of securities, the SC does not assess and intervene in the following:
The pricing of securities to be issued/offered under all types of corporate proposals, subject to compliance with broad guidelines as set out by the SC;
The valuation of assets, either for the purpose of incorporating revaluation surplus into the accounts of issuers or as the basis for purchase consideration in support of acquisitions by issuers, under certain circumstances as set out by the SC; and
The utilisation of proceeds raised from all types of issuance of securities, as long as the proceeds are utilised for core-business activities of issuers.
Besides liberalisation in the assessment process, the securities regulators further enhanced disclosure standards in public documents as can be seen in SC's requirement for high disclosure standards for prospectus, which it directly regulates since 1 July 2000, and the recent release of the Kuala Lumpur Stock Exchange (KLSE) Revamped Listing Requirements.

Phase 3 of the shift, which would signify the adoption of full DBR and would entail the SC evaluating the issue, offer and listing of securities primarily from the perspective of information disclosure, is targeted to be implemented by this year. This would be in line with one of the recommendations put forward in the Capital Market Masterplan which is to see the implementation of full DBR in the year 2001 on the premise of market readiness and preparedness.


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