Introduction

Good morning, ladies and gentlemen. I am pleased to welcome you to the Securities Industry Development Centre's Seminar on Capital Raising in Malaysia : A Changing Financial Landscape.

The past few months have witnessed some important developments in the regulatory landscape governing fundraising in Malaysia. The Securities Commission (Amendment) Act 2000 makes some far reaching changes to fundraising activities in Malaysia. Broadly, the amendments now position the SC as the sole regulator of all fundraising activities in Malaysia. One principal development arising from the amendments is the identification of the SC's role as the approving and registering authority for prospectuses in respect of all securities, other than those issued by unlisted recreational clubs. This is consistent with our ongoing efforts to rationalise the regulatory regime for fund raising activities, in order to promote an efficient and competitive capital market.

We consider these changes as timely, particularly in a climate where economic recovery is taking place and where there is increasing global competition for scarce funds. In recognition of these challenges, the SC has introduced various measures to facilitate issuers' need for cost-efficient means of raising capital, while not compromising our commitment to high standards of investor protection and market integrity. We expect that these reforms will bring about substantial savings in terms of time and costs to issuers.

Move towards DBR

One important objective of these reforms is to promote the disclosure of information which investors and their professional advisers reasonably require and reasonably expect to find in order to make informed investment decisions.

Against that background, the law reforms are therefore consistent with the SC's strategic move towards a full disclosure based system of regulation for fund raising activities. Disclosure based regulation or DBR, is a more equitable and efficient market based approach which restores the onus of capital allocation and decision making back to the market and which reflects the gradual progression of the Malaysian market towards higher levels of sophistication and maturity.

Reliance on disclosure as a means of investor protection has a long history. In a comment on English legislation passed in 1844, William Gladstone said "publicity is all that is necessary. Show up the roguery and it is harmless". Seventy years later in the US, this sentiment was echoed by Louis Brandeis who said that "sunlight is said to be the best disinfectants; electric light the most efficient policemen". The assumption is that fraud cannot stand sunlight and will not occur if full disclosure is required, but an offering that is not fraudulent ought to be permitted. Disclosure protects investors by enabling them to make informed and rational investment decisions. Further, disclosure promotes market efficiency by promoting investor confidence and ensuring the efficient allocation of capital amongst fund raisers.

What this means in Malaysia is that issuers are obliged to provide sufficient and accurate disclosure of all material information to investors and their advisers to enable them to evaluate the risks and merits of their investments. This is premised on the reasoning that those who are placed in the best position to determine what disclosures are relevant are those who are in the business themselves, not necessarily the regulator. Hence, the minimum disclosure requirements which are set out in the SC's Guidelines on Contents of Prospectuses, both for IPOs as well as for private debt securities, are precisely that - minimum requirements. It is incumbent on issuers to ascertain what would need to be disclosed over and above the minimum requirements set out by the SC in its various guidelines.

Development of the PDS

market In the case of private debt securities, the SC has accelerated its move towards a full disclosure based regulatory approach with the recent issuance of the Guidelines on the Offering of Private Debt Securities. This new framework substantially streamlines the PDS issuance process, because corporations may now undertake PDS issues without a prior assessment on the issue's merits by the SC, as long as the requirements set out in the PDS guidelines are complied with. Approval of the SC under these guidelines would be granted within a period of 14 working days from the date of submission of the declarations to the SC. We believe that the PDS Guidelines, together with the Shelf Registration Regulations, the Guidelines on Prospectus Contents for Debentures and the Guidelines for Minimum Contents of Trust Deeds, will go a long way towards providing an efficient, cost-effective and facilitative issuance process for issuers who need to access the capital markets through bond financing.

Due Diligence Responsibilities

I would like to emphasise, however, that a more facilitative issuance process does not translate as a more lenient one. Issuers are not absolved of the responsibilities that come with easier access to the capital markets. Regulation is not designed to guarantee the success of an investment opportunity or reduce investment risks. Rather, regulation is designed to ensure that investors are properly informed of the investment risks involved. Investors must be protected against unfair sales and advertising practices, fraud, negligence and other abuses where disclosure is not adequate.

To this end, we have introduced significant measures to underscore the SC's stance that those who play a role in the fundraising exercise must be held to high standards of conduct when carrying out their respective functions. The reforms include the clear identification of the extent of civil liability that may be potentially faced by the relevant parties involved the fundraising exercise. In addition to civil actions brought about by investors who suffer loss, the SC is empowered through section 155 of the Securities Commission Act 1993 to bring an action on behalf of a person who suffers loss or damage as a result of the conduct of a person who contravenes Part IV of the SCA, if it is in the public interest to do so. This enables the SC to initiate class actions on behalf of those whom it feels require such assistance.

Ladies and Gentlemen,

In our discussions with various interested parties, we at the SC appreciate the market's concerns regarding onerous due diligence responsibilities being benchmarked against a full disclosure system when the regulatory approach, particularly in respect of equity products, is one that is a combination of merit review and disclosure-based during this transitional period, which is until the end of 2001. There have been concerns expressed that during this transitional period, issuers and advisers may not be able to reap the full benefits of a disclosure-based system in being able to be flexible and innovative without attracting regulatory intervention, whilst costs of issuance would increase because of more stringent due diligence responsibilities.

I would like to say here that in managing the transition from a merit review to a full disclosure-based system, it is not possible to achieve legal certainty in the absolute sense. On the SC's part, in its implementation of the new regulatory framework, it would be reasonable, flexible and responsive to the way the current issuance and advisory market operates. Indeed, we welcome feedback and will continue our dialogue process with issuers, professionals and industry groups on the difficulties they may face in the light of these new requirements. The SC is committed to work together with market practitioners for solutions in this regard.

Ultimately, legal certainty would be achieved by the gradual dismantling of the SC's role in the assessment of the merits of corporate proposals under section 32 of the Securities Commission Act 1993. In its place, prospectuses would act as the key document in ensuring that full disclosure of information relating to an investment is made to investors.

Innovation

While the enforcement of high disclosure standards is undeniably a vital part of the new fundraising regime and bond issuance regulatory framework, there are also other important and innovative aspects of these reforms. They open up significant new opportunities for issuers, in terms of allowing greater variety and innovation in their fund raising activities. The advertising provisions, for example, seek to provide for a wider range of information that can be contained in post-prospectus advertisements. Preliminary or red herring prospectuses are now allowed, thus facilitating the book building process for issuers. Shelf prospectuses are also introduced for the public offering of private debt securities. In the future, the SC is looking towards introducing short form prospectuses and profile statements in order to enhance the readability and comprehensibility of prospectuses by investors.

Conclusion

Ladies and gentlemen, the SC considers that market players including issuers, advisers and investors, can play an important role in the delivery of regulatory outcomes in the capital market. You have a great deal to contribute towards the development and the maintenance of high standards in the fundraising process. These high standards are a crucial prerequisite to creating an environment for market-based supervisory policies. I would reiterate here that the SC is supportive of the private sector playing an active role in the setting and delivery of best practice standards. The SC would like to see a strong continuing role for the private sector in encouraging high professional conduct and promoting a culture of compliance. It is my hope that such partnership efforts will remain a hallmark of future efforts towards the development of the Malaysian capital market.

Thank you.