Three areas have been identified as major thrusts under the 1998-2000 Business Plan: strengthening the capital market regulatory framework; developing the capital market; and establishing a premier capital market education and training centre. While the first two areas are concerned with the need to brace the Malaysian capital market for the challenges of globalisation and emerging financial/commercial trends, the third focuses on preparing the market participants for these changes. A special focus has also been given in this business plan on the computer-related Year 2000 issue, which will have global and far-reaching commercial ramifications for business.
Strengthening the capital market regulatory framework
"One of the key concerns of the SC, under the first thrust, is to formulate a framework to better manage systemic stability and financial integrity of the financial system". In the foreword to the Business Plan, SC Chairman Dato' Dr. Mohd. Munir Majid said, "The speed at which capital markets function today and the size of funds issued involved greatly increase the possibility of a system-wide cascade in the event of a default by one part of the system".
The move towards front-line regulation (FLR) - to empower market institutions to carry out self-regulatory functions in both primary and secondary markets, with the SC as oversight regulator - is an important item on the SC's agenda. According to the SC, "The regulatory framework in Malaysia is evolving towards co-regulation with the state playing a crucial role in providing leadership on broad policy matters and strong enforcement whilst market institutions, as the front-line regulator, remain unfettered to determine detailed operational matters."
In this respect, the SC explained that "FLR task forces set up this year by both the SC and the Kuala Lumpur Stock Exchange (KLSE) have produced detailed plans for the implementation of this programme. The SC is satisfied with progress of these task forces and is confident that objectives will be met. While the focus of FLR is initially targeted at the KLSE, the SC is also pleased to note, as evident at its recent industry dialogue, the positive reaction of other industry groups towards this move".
At the micro-level, the SC has since 1995 been guiding the market to shift from a merit-based regulatory (MBR) environment towards disclosure-based regulations (DBR) - a more equitable and efficient, market-based approach which restores the onus of capital-allocation and decision-making back to the market. The move towards DBR, entering its second phase in the year 1999, will also be a prominent feature of the SC's Business Plan. Despite setbacks posed by the economic downturn and financial markets turmoil, the SC will persist to implement DBR according to plan. However, the SC stresses that "apart from having a regulatory and legal framework in place, the success of DBR will ultimately depend on the readiness and willingness of market participants for this shift".
From a wider perspective, the move towards DBR and FLR reflects the gradual progression of the Malaysian market towards higher levels of sophistication and maturity. Where DBR imposes greater responsibility on investors, FLR balances the equation by requiring greater responsibility on behalf of the market institutions.
A key component of the shift towards DBR, as stressed in the SC Business Plan, is the strengthening of the corporate governance mechanism in companies. It involves essentially the promotion of shareholder rights and responsibilities, including those of minority shareholders. The SC added that good corporate governance will also "require shareholders and their representatives on the board to be more independent and active in corporate affairs, monitoring and demanding more transparency from management." Investors will also need to be educated so that they understand the risks and rewards of investing in securities and how to make informed investment decisions.
The SC Business Plan also stresses the importance of effective enforcement as "the other pillar" of capital market regulation. In essence, a well-functioning capital market will need to have sound laws and regulations that are complemented by proper enforcement. In this regard, the SC's activities for the next two years or so, will include enhancing its enforcement capabilities as well as that of the front-line regulators. To the SC enforcement is crucial as it "provides motivation for market intermediaries to develop self-discipline needed to comply with the laws and exercise best industry practices, thereby raising the quality of financial services in the country". From the perspective of the investor, effective enforcement of securities laws will ensure that their rights are upheld, and at the same time maintain their confidence in the market.
Developing the capital market
In spite of the economic turmoil, the SC remains resolute in its continuing efforts to add breadth and depth to the capital market by promoting and facilitating the development of a diversity of asset classes.
The lack of liquidity in markets highlights the need to focus on the development of the bond market and fund management industry and the SC has specific plans through its programme to develop collective investment schemes, asset management industry and retirement benefit schemes. According to the SC, "As has been demonstrated by the current economic turmoil, the Malaysian domestic capital markets are vulnerable to sudden massive outflows of foreign funds. The negative impact of financial integration could be reduced by developing a deep domestic institutional investor base. For this, the development of the fund management industry to boost local institutional participation will be an urgent, priority area in the SC's Business Plan".
Following through from this year's industry dialogue theme,"Repair, Rebuild and Restore: Responsibilities of Market Participants", the SC has on-going development plans for all markets. While the developmental direction for the mature markets is clearer, it is more challenging for the new markets like derivatives and the Malaysian Exchange for Securities Dealing and Automated Quotation (MESDAQ). The SC commented that "efforts to develop and strengthen all facets of the Malaysian capital market have always been on the SC's agenda. However, the pace of capital market development in the coming years will have to take into consideration the changing local and global environment".
The competitiveness of our market will also depend on market response to information technology developments and in this respect, the SC will "address the role and impact of electronic commerce on the capital market by developing a master plan to be used as the basis for initiating electronic commerce applications for the capital market".
Develop SIDC as a premier capital market education and training centre
The SC's training and education arm, the Securities Industry Development Centre (SIDC), plays a crucial role in the development of the Malaysian capital market. By developing the SIDC into a premier capital market education and training centre, the SC hopes to ultimately contribute directly towards the creation of a group of market participants who are educated, knowledgeable, professional and responsible. An important objective for SIDC will be the establishment of a centralised test centre for the capital market to replace the present arrangement whereby examinations are conducted by the different exchanges and self regulatory organisations (SROs).
Preparing for the Year 2000
The SC, in cognisance of the ramifications of the computer-related Year 2000 (Y2K) issue, will continue its efforts, initiated since July 1997, to ensure preparedness of all SC's constituents within the capital market to rectify the problem. In this respect, the SC is encouraged by the capital market's efforts to be Y2K compliant. The Y2K-related plans for exchanges and market intermediaries in this Business Plan are very clear and specific.
