The SC had issued show cause letters to the two companies, pursuant to Section 27 of the Securities Industry Act 1983, on why their stockbroking licences should not be suspended or revoked on 15 April 1998. The SC received their responses on 29 April 1998.

The SC's decision has had to be taken in order to ensure that investor assets are not further undermined and that any potential systemic risk is contained. To address investor concerns, the SC and the Kuala Lumpur Stock Exchange ("KLSE") have made contributions to boost the compensation fund to RM314 million. At the same time the SC is examining an additional mechanism to further address investor concerns. The SC has also instructed the KLSE to disclose the financial position of stockbroking companies so that investors can make informed decisions in their dealings with stockbroking companies.

MBf Northern and Labuan Securities were put under restricted trading on 1 December 1997 and were required by the KLSE to regularise their financial position by 31 March 1998. On 1 April 1998, the SC instructed the KLSE to issue a directive to the firms to effect an agreement in principle to merge with or be acquired with entities acceptable to the SC by 14 April. After more than five months both these companies had failed to comply with the capital and other prudential standards of the securities laws and KLSE Rules resulting in the present decision.

The SC has also considered the replies to the show cause letters from Kin Khoon & Co. Sdn Bhd ("Kin Khoon") and Capitalcorp Securities Sdn Bhd ("Capitalcorp"). Kin Khoon has taken steps to address its financial position and KLSE is in the process of evaluating those steps. The SC will make a decision based on that evaluation. With respect to Capitalcorp, certain documents have been forwarded to the company and the SC is waiting for the company to respond by 19 May.

Two other stockbroking companies, Omega Securities Sdn Bhd and Alor Setar Securities Sdn Bhd have been issued show cause letters on 4 May after being placed under trading restrictions in February. These two companies have been given two weeks to make representation as to why their licences should not be revoked or suspended. There are currently 13 firms which have been placed under restricted trading by KLSE.

KLSE, in a separate announcement today, will detail arrangements to handle investor and other inquiries arising from the suspension of the licences of MBf Northern and Labuan Securities.