From the common issues discussed at various group dialogue sessions, the following broad themes were identified at the plenary:

Consolidation in the Malaysian capital market
Market institutions

The stresses of the market have acted as a catalyst for consolidation at all levels of the market, at a faster pace than would otherwise have been case. Among the market institutions, we are seeing the take-over of Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) by the Kuala Lumpur Stock Exchange (KLSE) and the forthcoming merger of Kuala Lumpur Commodity Exchange (KLCE) and Malaysia Monetary Exchange (MME). A final "big bang" merger can also be anticipated. These developments will, over time, have beneficial effects on market participants.

The SC will take into consideration the rationalisation of the licensing regime and relevant law reforms, while the frontline regulators (FLRs) will need to review and harmonise business rules. The other consequential effects will be the impact of mergers on clearing arrangements. In this respect, the Securities Clearing Automated Network Services Sdn Bhd. (SCANS) recognises the need for a complete review of its role which will include working towards becoming a central guarantor to address counterparty risk and achieving corporate independence. From the SC's perspective, priority would be to look into formalising SCANS as a central guarantor. The intention is for SCANS to act as the explicit central guarantor as opposed to an implicit guarantor thereby reducing settlement risk.

Market intermediaries
The SC is pleased to note that the securities industry has been very receptive to the need for consolidation. While consolidation has generally been viewed as involving the merger between the strong and weak, the SC has emphasised that it also encourages mergers between financially strong entities. It should also be borne in mind that the purpose of mergers is to create enhanced management and resource capabilities - stronger entities which are more resilient to the vagaries of the industry. During the dialogue, industry sought regulatory guidelines for the consolidation process. However, the SC is of the view that such efforts should be left to market forces and commercial considerations, as long as the new entity complies with the prudential requirements of the laws and regulations. The SC invited industry submissions and proposals in the process.

Rationalisation of the regulatory framework
The current market situation has brought to the forefront, yet again, and more forcefully this time, the need for rationalisation of the regulatory framework. At a time when industry is looking to cut costs, the inefficiencies of the regulatory framework add to the cost of doing business and therefore there was unanimous call from market participants for the process of rationalisation to be speeded up. It has been suggested that the SC pursue this. In this regard, industry has specifically expressed support for the establishment of a one-stop agency for the capital market. The SC will convey this to the tripartite committee comprising Bank Negara Malaysia (BNM), Treasury and SC, which was established following the last SC Annual Dialogue. The committee was set up to review the current regulatory structure in the financial system and to recommend ways in which these structures can be optimally rationalised.

Frontline regulation
The overall plan to move towards frontline regulation has commenced. The ultimate objective is for frontline regulators (FLR) to have greater responsibility to the investing public which extend beyond their own members. The market has seen the establishment of the Malaysian Exchange of Securities Dealing and Automated Quotation (MESDAQ) as a full-fledged FLR and the SC in its 1998-2000 Business Plan is committed towards developing KLSE into a frontline regulator. Market participants were informed by the SC that plans to empower KLSE is scheduled to take full effect by the year 2001. The complete delegation of frontline regulatory responsibilities will only be done when SC is satisfied with KLSE's readiness. In this respect, SC and KLSE have formed their respective task forces to ensure the successful implementation of this plan. SC will lead manage the change which will involve improving governance structure, formalising consultation process with industry, enhancing supervision of member companies and surveillance of the market.

Competitiveness and efficiency
Market institutions and industry participants were concerned about the threat posed by regional competition and discussed the various strategies to combat this. Among the internal weaknesses identified was the cost of doing business, counterparty risk, lack of domestic institutional participation and lack of innovation.

Another threat is the impact of technological developments which is already evident with the free and easy access of the Internet as a communication vehicle. However, it was highlighted at the dialogues that technology can also be viewed as an opportunity whereby the use of technological innovation can be used by businesses as a means to providing better and more cost effective services.

Market participants recognised that there was a need to build internal strengths which would include:

• improving the level of professionalism;
• enhancing risk management;
• improving business conduct;
• need for continuing education;
• lower costs;
• product development; and
• allowing greater foreign participation.

It is heartening to note, in this environment, that advisers and professionals are committed to maintaining/upholding standards of professionalism. This is a good sign as it shows market participants are united in regaining confidence of the market.

The SC expressed its eagerness to receive any proposals that will facilitate capital raising exercise. It is willing to listen to not just the advisers but also to the corporates and where it is within its control, the SC will expeditiously act as it did with the recent variations to its Issues Guidelines on capital raising.

The SC also informed industry that it would take up proposals on fiscal incentives that would facilitate market development or reduce cost of doing business.

The current market situation has highlighted the urgent need to review the transaction costs in light of the immediate threat of competition. In this respect, the SC has asked the stockbroking industry to seriously assess commission rates as it would have an immediate and direct impact on industry competitiveness.

One of the measures to strengthen the stockbroking industry is the introduction of the capital adequacy framework and client asset protection framework. Initiated by the SC even before the onset of the turmoil, both these frameworks will be implemented by the end of year and are designed to, not only protect the investor, but also to better position the stockbroking industry to face competition.

The SC is pleased to announce that market institutions of the futures industry comprising KLOFFE, MME, KLCE and Malaysian Derivatives Clearing House (MDCH) have formed during the course of this year's dialogue, the formation of a Derivatives Industry Strategic Steering Committee (DISSC), in which invited the SC will participate. The primary aim of DISSC will be to strategically position the Malaysian derivatives industry domestically as well as internationally. However, given the immediate threats posed to the industry by the proposed actions of SIMEX to launch a KLOFFE index futures look-a-like product, DISSC will initially focus attention on combating this threat. The Malaysian Futures Brokers Association (MFBA) had also proposed that a Product Development Committee be established to ensure a consolidated effort for product development in the derivatives industry.

The natural evolution of businesses in certain sectors of the market has raised certain questions about the future. The current economic challenges have accelerated the need to think hard about the next course of action which may involve enhancing the services of these market participants by providing value added services or diversifying their core businesses.

The SC also highlighted to industry the potential commercial impact of the Year 2000 (Y2K) issue. The SC is pleased to note that the KLSE and the futures exchanges have taken the lead in ensuring that its members are Y2K compliant. The SC will continue to monitor the plans that were reported at the dialogue sessions of all market participants.

Corporate governance, transparency and disclosure
A common resolve by market participants is commitment towards corporate governance, enhancement of transparency and disclosure.

• In the area of corporate governance there was an urgent need to:
• re-examine fiduciary duty of directors;
• enhance effectiveness and duties of independent directors and audit committee;
• enhance transparency and corporate conduct; and
• safeguard interests of minority shareholders.

Where relevant, the SIDC has already planned education programmes for directors of public listed companies (PLC).

Market participants were informed that the Finance Committee on Corporate Governance has completed its report proposing a comprehensive set of measures to be undertaken to raise standards of corporate governance. The recommendations of the report cover three broad areas mainly :

The perception of the lack of disclosure and transparency by PLCs has lowered confidence in the market. Several suggestions were made during the course of the dialogues to improve disclosure and transparency not only by industry but also by regulators. Some of the more relevant proposals were:

• information relating to listed companies should be widely distributed;
• establishment of investor relations units by PLCs as a condition for continued listing;
• expansion of the role of advisers to ensure continuous post-listing disclosures by PLCs; and
• transparency of the regulator in the formulation and implementation of their policies and rules.

The SC's response to the call for transparency by the regulator was that it has always been its practice to consult industry on the introduction of new policies or guidelines. However, the consultations are through parties that are directly affected.

The SC also updated market participants on the SC's plans on the phased move towards disclosure-based regulation (DBR). SC informed market participants that Phase 2 has been deferred from January 1998 to January 1999 as a result of both market readiness for DBR as well as macroeconomic concerns. It is worth noting that some measures undertaken by SC in response to economic and financial turmoil were originally planned to be instituted later under the DBR programme but had their implementation accelerated because of the need to facilitate capital raising by listed companies. Thus one positive contribution from the turmoil is that some aspects of DBR were accelerated rather that decelerated.

Public listed companies were briefed on the financial reporting, surveillance and enforcement programme which the SC started at the beginning of this year. The objectives of this programme involve the examination of audited annual accounts primarily focusing on departure from accounting and disclosure standards and to rectify deficiencies in information provided to the market.

After the Plenary session, the SC Chairman launched the SC's latest education booklet entitled "An Initial Public Offering (IPO) Prospectus - What Every Smart Investor Should Know", which is available free-of-charge to the public.

Effective enforcement and surveillance
Market participants have recognised that visible, effective enforcement is a necessary confidence booster to the market. The SC is of the view that the enforcement function is a role that all market participants can play and should not be regarded as solely the function of the regulator. While the regulator is expected to act on transgressors of laws and regulations, self-policing by the industry is a culture that the SC would encourage. To be effective, the regulators which include the SC and the frontline regulators, need the cooperation of the industry to report on any breaches of rules or misconduct. Industry should be cognisant that investigations by the SC is a lengthy process and that speculation during this process can hamper the progress of the regulator's work.

Education and training
As with past dialogues, the issue of training is one of the major agenda items. For this year's Dialogue the Securities Industry Development Centre (SIDC) of the SC tabled its programmes for market participants which were well received by industry. In the current economic situation where the budget for training and education is depleted, both SC and market participants recognised the urgent need to pool both financial and human resources. The fact that the SIDC has, through the Bumiputera Training Fund (contributed by the SC, KLSE and all the stockbroking companies), provided training for Bumiputeras was well appreciated by industry.

The main developmental plans by SIDC for industry include the introduction of the Continuing Professional Education (CPE) programme for market professionals. The objective is for professionals to earn and maintain trust and confidence of investors. When fully implemented, the SC will be requiring all registered participants of the industry to participate in this programme and, in some cases, will be a pre-condition to renewals of licences. The SC also reported its plans to centralise the examination functions, now performed by various bodies, in order to create administrative and cost efficiencies. This new test centre will be operational at the beginning of next year.

When the SC and SIDC move to its new building next year, market participants can expect to see SIDC increase its role in providing education and training for the Malaysian capital market participants. Forty percent of the building will be dedicated for use by the industry and will include facilities such as an information resource centre, exhibition halls, conference and meeting rooms.