Improved economic and market conditions have enabled the SC to focus, once again, on measures to consolidate and enhance the Malaysian capital market. Many of the SC's efforts in 1999 were actually built on those of previous years, many of which have been outlined in the SC's business plans.

In this regard, a major initiative of the SC in 1999 centred upon the development of a Capital Market Master Plan (CMP), which aims to be a comprehensive and cohesive plan for charting the strategic positioning and direction of the Malaysian capital market. The CMP is expected to be completed in the middle of this year.

Among other things, the CMP will be addressing the issue of e-commerce in relation to the capital market. Nonetheless, efforts in the area of e-commerce have been initiated since the early years of the SC's inception as a response to advances in information technology. The result of these efforts was seen in 1999, a year which saw several milestones relating to e-commerce for the SC.

Following on from the 1997 "Discussion Paper on Electronic Commerce and the Malaysian Capital Market - Regulatory and Developmental Changes", the SC had in 1999 intensified efforts on the formulation of a framework for e-commerce. This resulted in the release of a "Consultation Paper on Framework for the Implementation of Electronic Commerce in the Capital Market" in March 2000.

The year 1999 also saw the SC issuing a policy statement entitled "Primary Offers of Securities via the Internet" that clarified the SC's position on offers of securities via the Internet in relation to section 32 of the SCA. In addition, the SC had also applied its views to at least one primary market offering of securities via the Internet, stating that the fund, which was being offered to Malaysians, had not been approved by the SC.

The SC's on-going efforts to enhance and strengthen the stockbroking industry, will also be encapsulated under the CMP. In this respect, the aim is to establish a stronger, well-capitalised and more efficient stockbroking industry that is resilient and better able to face the challenges of globalisation and liberalisation.

The SC (with the collaboration of Danaharta) had also, in 1998, introduced a scheme to rescue brokers stricken by the crisis. A host of requirements were also introduced through the rules of the Kuala Lumpur Stock Exchange (KLSE) to enhance the level of integrity and prudential standards of brokers.

According to the SC Chairman, the SC-Danaharta broker scheme had shown good progress since its introduction. As at end 1999, of the 11 brokers under the scheme, one has had its trade restrictions lifted while the restructuring proposals for the rest were at advanced stages.

In the aftermath of the financial crisis in 1997, it was found that the reforms that were made to the regulatory framework for the Malaysian securities industry were generally in the right direction, but needed acceleration and stronger implementation in some cases, and adjustment in others.

The corporate bond market was an area of development that needed to be accelerated, in line with the government's objectives under the National Economic Recovery Plan (NERP).

"Over the last decade, the basic infrastructure and institutions of the market have been established. In order to reap the rewards of this, much must be done to accelerate the necessary reforms," the SC Chairman said.

To this end, the government has established the National Bond Market Committee (NBMC) to lead all bond market development efforts in Malaysia. It has also decided that the SC will be the sole authority for the corporate bond market and changes to the law are being made to facilitate this.

The SC, as a NBMC member, foresees a challenging role in the development of the corporate bond market. In undertaking such a task, it will continue to conduct extensive consultations with major market participants to obtain their views and comments. The SC believes that market participants can help the government formulate an effective strategy to realise the goal of developing a viable and liquid corporate bond market in Malaysia.

The SC Chairman said in the Chairman's Statement that the SC would also ride on corporate bond market development efforts to accelerate its planned transition to a disclosure based-regime via the bond market. The accelerated transition in this case is justified because of the extra protections that are inherent in the legal structure of bonds compared to the legal structure of equities.

Meanwhile, the capital market entered into the second phase of implementation of disclosure-based regulations (DBR) following the end of the first phase on 31 December 1999. This saw two rounds of amendments, in April and December, to the SC's Policies and Guidelines on Issue/Offer of Securities.

The April 1999 amendments involved the revision of requirements for listing on both the Second Board and Main Board of the KLSE and reverse and take-overs/back-door listings. The revised requirements were aimed at strengthening listing standards to provide added comfort to the investing public in their investment opportunities as well as for the growth and orderly development of the Malaysian capital market.

The amendments in December 1999 were particularly significant because they marked the commencement of Phase 2 of DBR. They focused generally on pricing of securities, valuation of assets and utilisation of proceeds. Under Phase 2 of the DBR programme the SC would minimise its assessment in these areas as long as the broad requirements/guidelines are complied with.

One of the important tenets of DBR is corporate governance, a much-talked about subject in the aftermath of the crisis. According to the SC Chairman, the SC is keenly aware of the need to move further ahead in raising the standards of corporate governance and accountability, more so as the capital market matures and the economy moves on to the next stage of recovery.

In this regard, the formation of the Finance Committee on Corporate Governance in March 1998 was a watershed, which brought together illustrious members of the government, the corporate sector, industry organisations and regulatory agencies to undertake a comprehensive review of corporate governance in Malaysia. The efforts of this committee resulted in the highly-regarded Report on Corporate Governance being released in March 1999.

"The release of the Committee's Report on Corporate Governance in March 1999 was a major milestone in that it represented Malaysia's and indeed one of Asia's farthest-reaching collaborative efforts in the field. The report was widely regarded as one of the most advanced of its kind in the region, and I understand it is now being used as a reference for corporate governance systems in other jurisdictions," the SC Chairman said.

The SC Chairman added that, following the establishment of the Implementation Project Team for the report, many of the recommendations of the report have been implemented and some are in various stages of implementation.

Additionally, it is expected that the Malaysian Code of Corporate Governance, which is one of the recommendations of the report, will be adopted by all public listed-companies in the revamped KLSE listing rules this year.

Another area in improving corporate governance was the review of the take-overs code that resulted in a new code being introduced in 1999. The new code imposes higher duties on directors to make full and honest disclosure to shareholders before they vote on a resolution. The code seeks to ensure that relevant information is available to minority shareholders in order for them to make an informed decision on the merits of accepting a take-over offer, particularly in the area of granting waivers from mandatory offer obligations.

"Under the Code, interests of the small or minority shareholders will be better protected via its provisions for higher standards of disclosure, corporate behaviour and greater professionalism. Minority shareholders will also have the opportunity to consider the merits and demerits of an offer so as to be in a better position to decide whether to hang on to dispose their shares," said the SC Chairman.

International Affairs

The SC's efforts and expertise were also extended internationally. In this regard, the SC continued to contribute to the process of improving international regulation through its role in various international organisations such as the International Organisation of Securities Commissions (IOSCO) and the Asia-Pacific Economic Cooperation (APEC). Among others, the SC as a participant of the IOSCO Hedge Funds Task Force provided input on risks of concern to market regulators, the need for greater disclosure of information by highly-leveraged institutions and the types of information on the activities that could be usefully disclosed.

The SC was also the sole emerging markets regulator that was a member of the IOSCO-CPSS (Committee on Payment and Settlement Systems) Joint Task Force on Securities Settlement Systems.

The SC, on behalf of Malaysia, also led APEC's efforts to strengthen corporate governance in the region by spearheading the formulation of a report on corporate governance. The report was endorsed by APEC Finance Ministers in May 1999.

Enforcement

As the SC channelled efforts towards improving the market, it continued to pursue its enforcement role diligently.

"For these market improvement efforts to achieve the desired results, good enforcement is essential. It is the statutory duty of the SC to preserve market integrity and protect shareholders' interests, a duty the Commission discharges without fear or favour," the SC Chairman said.

Efforts in previous years proved worthwhile and the year witnessed the highest number of enforcement actions being taken by the SC since its inception in 1993.

"The period under review was a record-year for the Commission. We investigated 54 cases, and initiated 23 prosecutions in court for alleged offences ranging from submission of false information to short-selling, fraud and abetment."

Encik Ali also said that the SC had compounded 14 cases involving breaches of licensing provisions under Part IV Securities Industry Act 1983 (SIA).

The SC Chairman also highlighted that the SC's enforcement functions were enhanced with the appointment of Dato' Ainum Mohd Saaid as Deputy Chief Executive and to oversee the Enforcement and Market Supervision Divisions. In addition to that, two senior officers of the Attorney-General's Office were seconded to the SC during the year.

Education and Training

In 1999, the Securities Industry Development Centre (SIDC), the education and training arm of the SC, achieved a major milestone when it became a one-stop examination centre for capital market participants.

This means that the SIDC became the sole body to conduct examinations for trainee dealer's representative on the KLSE and the Malaysian Exchange of Securities Dealing & Automated Quotation (MESDAQ); futures broker's representatives on the Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) and the Commodity and Monetary Exchange of Malaysia (COMMEX); fund manager's representatives; futures fund manager's representatives and designated persons in the unit trust industry.

Under the Bumiputera Training Fund (BTF), the SIDC conducted 32 programmes for Bumiputera employees in the stockbroking industry. A total of 1,040 people attended the training sessions, which were held under four main areas of focus - sectoral analysis, investment management, self-improvement skills and current issues.

Accounts

Total income for the SC for the year ended 31 December 1999 increased by more than 15.7% from the previous year, from RM104.57 million to RM120.94 million. The increase in income is reflective of the improving market sentiments. The SC derives its income mainly from the levy imposed on transactions in the stockmarket and fees and charges for corporate proposals.

Total operating expenditure for the year 1999 increased by 28.9% from the previous year to RM78.63 million. Personnel (46.5%) and administration (28.8%) expenses formed the main components the SC operating expenditure in 1999. On the other hand, capital expenditure declined from RM152.26 million at the end of 1998 to RM139.41 million at the end of 1999.

The SC ended the year under review with a surplus after taxation of RM38.16 million, higher than the RM28.85 million attained at the end of 1998.

Human Resources

Total staff strength of the SC as at end of 1999 was 441 persons representing a 5.0% increase in manpower compared to 1998. The staff turnover rate of the SC increased significantly to 5.4% (1998: 1.7%) with executives accounting for 4.5% and non-executives, 0.9%.