When the challenge to set up a new exchange and to get it up and running before year end was issued to industry at the beginning of this year, the enthusiasts and skeptics among you were, I would say, quite evenly balanced. I am aware that the deadlines that were set for the Mesdaq Industry Action Committee (IAC) are tight and leave little room for error. I would like, therefore, to use this occasion to congratulate them for their progress made so far; but not without, I am certain, the wholehearted co-operation of the Kuala Lumpur Stock Exchange (KLSE). So thanks and congratulations all round.
Today's event is clear evidence that if all of us were to put our shoulders together and push in the same direction, we would be able to reach our goal within the timeframe set. This reminds me of a quote I came across not too long ago, that is "the greatest pleasure in life is doing what people say you cannot do".
The KLSE should be commended for their commitment and effort taken in responding to the requirements of the new exchange so quickly. They have looked positively at the general interest, and are not viewing Mesdaq as a potential competitor, but as a strategic component of the government's overall plan to develop a technology-intensive industrial base. Mesdaq's entry into the Malaysian capital market will complement the activities of the KLSE; it was designed to fulfill a funding need for companies with good growth potential but no track record, which cannot be served by the KLSE.
The memorandum of understanding and service agreements to be signed today between the Mesdaq and the KLSE and its subsidiaries will bring about the efficient utilisation of existing resources. I had mentioned in the announcement of Mesdaq's framework that the new market should, wherever possible, utilise existing infrastructure. And it is heartening to note that you have done so.
While the signing of the service agreements today is one of the milestones in Mesdaq's critical path towards the eventual launch of the exchange, it also signals a shift in the role of SCANS and MCD as intermediaries in the equity market. They will no longer serve the operational needs of one market but two.
The importance of a common clearing house cannot be over-stated. SCANS' job, along with MCD, is to help ensure the safety and soundness of the Malaysian marketplace by developing centralised, standardised, post-trade automated processing solutions that increase efficiency, minimise risk and reduce costs. However, both institutions should think beyond merely providing efficient clearing and settlement facilities for equities; they may want to explore the possibility of including municipal and unlisted corporate bonds into their portfolio or even a stock borrowing and lending programme. This would allow investors to lend available stocks in their CDS account to cover temporary shortfalls in delivery, while at the same time earn interest on the stock borrowed all in the safety of a controlled environment.
There are other issues that SCANS in particular may want to consider in order to effectively undertake the role of a national clearing corporation. As you may be well aware, in the futures market, the two clearing houses - the Malaysian Derivatives Clearing House and the Malaysian Futures Clearing Corporation - are undergoing a restructuring exercise with the objective of merging. There will be I believe some changes in the shareholding structure of the merged entity. Similarly the National Securities Clearing Corporation in the United States is owned jointly by the New York and American Stock Exchange and the National Association of Securities Dealers Inc, the markets that it is clearing for.
SCANS should also be working towards the establishment of a clearing or guarantee fund to secure members' obligations to the clearing house and other liabilities and losses should they occur. Clearing members will have to contribute to the clearing fund according to a formula to be identified by the Board and approved by the Commission. Guaranteeing the financial settlement of transactions is a central function of SCANS, and one that eliminates uncertainty in the marketplace.
Beyond this, should SCANS not be thinking also beyond national markets, lucrative though they may be, and should it not build up resources to offer services trans-nationally, with electronic systems and information technology already available to be used? The Securities Commission would like to encourage SCANS to think big and not just be satisfied with local fodder which, in any case, will not always be an exclusive preserve.
I leave you to ponder over these issues and would like to close my brief remarks with these words; nothing remains static in our business. Advances in technology, trends in globalisation, the evolving preferences of investors and so on are all forces driving change in the financial services industry. And, progress is not made by taking pride in our present standards but by critically examining these standards, going about setting higher standards and attempting to achieve them.
Thank you.
