Bursa Malaysia’s Regulatory Market Report 2009 highlighted that alongside hints of economic recovery, market integrity remained intact in 2009. In ensuring this, the Exchange maintained its approach of offering a balanced regulatory environment which addressed both investor protection and promoted the development of Malaysia as a destination for fundraising and investment.
In 2009, Bursa Malaysia maintained its thematic regulatory approach which focused on five key areas that are central to the maintenance of a fair and orderly market:
- enhancing the standards of corporate governance among Public Listed Companies (PLCs)
- improving standards of disclosure
- promoting high standards of business conduct among market participants
- enhancing the effectiveness of enforcement
- elevating the level of education and awareness in the industry.
Bursa Malaysia Chief Regulatory Officer, Selvarany Rasiah said, “The strategic thrust of Bursa Malaysia’s regulatory approach draws upon the need to build high standards of business conduct, which is strongly linked to market integrity. Capital market players must remain focused on a secure environment for investment and fundraising with emphasis on transparency, accountability and integrity. These are essential in any market, so it remains attractive to investors.
“Last year, the Exchange enhanced its surveillance and enforcement processes which we perceived to be crucial to the operation of a fair and orderly market, especially during uncertain market conditions. Through these measures, our overriding aspiration has always been to encourage high levels of voluntary compliance but whenever there is a serious or persistent failure, we have the capacity to take action to ensure compliance,” she said.
ENGAGEMENT
To promote high standards of business conduct, the Exchange encouraged market participants to ensure they had strong internal controls to meet their compliance obligations. “There was a high level of engagement with market participants to let them know about our concerns and assist them in addressing these areas. We monitored the financial strength of market participants through regular stress testing and impact analysis to ensure that their financial positions remained sound and potential deficiencies were discovered and acted upon immediately,” she said.
Matters of regulatory concern were quickly followed up. “Our one-on-one engagement with market participants ensured they remained focused on the need to comply with regulatory requirements. Surveys were conducted to assess the standards and risk management practices of market participants. Where necessary, they were engaged to resolve regulatory issues and concerns.”
Selvarany said she believed that these measures proved to be effective in safeguarding the market and investors from any defaults that may have arisen due to the volatile conditions. As at 31 December 2009, the industry average for Investment Banks Risk Weighted Capital- adequacy Ratio (RWCR) was above the minimum requirement of 8%, Non-Investment Bank’s Capital Adequacy Ratio (CAR) was 10.35 times against the minimum requirement which must exceed 1.2 times, and Adjusted Net Capital for derivatives brokers was RM11 million, which is above the minimum requirement.
SURVEILLANCE
The role of Bursa Malaysia’s Market Surveillance Division is to conduct front line real-time surveillance and post-trade monitoring of market activities to detect potential breaches of our Rules and of the securities laws. To do this, Bursa Malaysia uses a surveillance system, Automated Real Time Alerts for Market Intelligent Supervision (ARAMIS) which was commissioned on 1 December 2008 and had its first full year service in 2009. Alerts generated by ARAMIS were crucial in aiding the surveillance analysis in determining whether potential market abuses such as manipulation or insider trading had occurred.
To maintain orderliness in the market, we issue Unusual Market Activity (UMA) queries. In 2009, we issued a total of 26 UMA queries. We also issued surveillance queries to the brokers where necessary and engaged with them on our surveillance concerns. This is also another method employed to maintain fair and orderly trading.
NEW MARKET STRUCTURE
On 3 August 2009, one of the most far-reaching changes in the Malaysian market structure took effect when Bursa Malaysia’s Main Board and Second Board merged into a single board to form the Main Market, and the MESDAQ Market became the ACE Market which is open to companies of all sizes and from all economic sectors. Listing processes and procedures were reviewed resulting in shorter time to market for both IPOs and secondary issuances of securities. As part of the new market structure, there were significant transfers of responsibility from the Securities Commission (SC) to Bursa Malaysia and some process changes within the SC.
SC’s approval is now only required for the following corporate proposals in the Main Market:
- Initial Public Offerings (IPOs)
- acquisitions resulting in a significant change in business direction or policy of a listed corporation (reverse take-overs and back-door listings)
- secondary listings and cross listings
- transfer of listings from the ACE Market to the Main Market.
Bursa Malaysia became the approving authority for all secondary equity fund-raisings such as rights issues, placements and issuances of securities for acquisition of assets that do not result in a significant change in the business direction or policy of a listed corporation.
SC continues to vet and register prospectuses to ensure adequate and meaningful disclosures to investors.
In addition to being sponsor-driven and open to companies of all sizes and from all sectors, there is no prescribed minimum operating history or profit track record requirements for entry to the ACE Market.
For the period from 3 August 2009 to 31 December 2009, Bursa Securities has approved 42 proposals for secondary fund raisings for total value of approximately RM9.8 billion.
STANDARDS OF DISCLOSURE
At the time of the creation of the new Main Market and ACE Market, Bursa Malaysia enhanced its disclosure requirements concerning listing applications, announcements and circulars especially in relation to new issues of securities and related party transactions.
The Exchange issued a total of 406 queries in 2009 requiring PLCs to make additional disclosures or provide clarification in respect of their corporate announcements. In 2008, 192 announcements were issued. The number of media queries in 2009 dropped to 157 compared to 2008’s 205. These were issued for PLCs to clarify, deny or confirm rumours or reports about material information not previously disclosed.
Bursa Malaysia also initiated a comprehensive project to identify problems with current disclosure practices and devise methods of improving the standard of disclosure across the market. “ Investors are entitled to timely and accurate information and our Listings Division has been very active in ensuring that all appropriate disclosures are being made to the market. The current project aims to ensure that all PLCs meet a high standard of disclosure for the benefit of investors.” Selvarany said.
“We are also pleased to note that the rate of compliance by PLCs for submission of financial statements by the due time was greater than 99%.” said Selvarany. “We want to acknowledge the good performance of companies in this regard.”
CORPORATE GOVERNANCE (CG)
High standards of CG are essential in ensuring that PLCs are properly managed and offer sound investment opportunities. CG is a system of structuring, operating and controlling a company with a view to achieving its long term goals to satisfy shareholders, creditors, employees, customers and suppliers as well as complying with all of its legal and regulatory obligations.
Bursa Malaysia has undertaken initiatives to promote high standards of CG using a 5-pronged approach of development: engagement, education, enforcement, monitoring and surveillance. In 2009 the education and engagement efforts included:
- The publication of the Corporate Governance Guide which was launched by the Chairman of the SC, Tan Sri Zarinah Anwar during the Securities Commission-Bursa Malaysia Corporate Governance Week 2009;
- A series of Evening Talks were organised to create awareness and share information about important CG issues with industry professionals;
- Engagement with the Asian Corporate Governance Association on updates and developments in our capital market; and
- Engaging the local institutional investors to promote awareness of how the exercise of shareholders’ rights can influence company behavior.
ENFORCEMENT
A. PLCs and Directors
Bursa Malaysia continues to take strict enforcement action against directors who
are found to have breached the Listing Requirements (LR). The total number of
sanctions imposed against PLCs and directors in 2009 was 76 and 232
respectively, compared to 71 and 89 in the previous year. The enforcement
actions in 2009 were made against 34 PLCs and 76 directors, and involved
imposition of fines amounting to RM3.76 million against the directors.
Number of sanctions against PLCs & Directors for non compliance with LR
Year | Sanctions target | Sanctions target | Sanctions target | Sanctions target |
---|---|---|---|---|
2009 | PLC | 11 | 65 | - |
Directors | 4 | 37 | 191 |
Directors are responsible for putting in place adequate controls and risk management mechanisms, and making disclosures that are complete, accurate and timely. “These will act as the essential yardstick for investors to assess companies’ performances and corporate governance practices,” Selvarany said.
“The Exchange would like to see higher levels of commitment from Boards of Directors in enhancing the practice of good governance as well as inculcating it into the culture of their companies. We place significant emphasis on this area and engage with directors on our CG expectations. In addition to fines and reprimands, we are placing more emphasis on awareness and education,” Selvarany offered.
The Exchange has been requiring errant companies to send their directors and other relevant personnel to attend training on compliance with the Bursa Malaysia’s LR.
B. Market Participants
Bursa Malaysia had an equally strong focus on compliance by market participants.
In 2009, a total of 133 enforcement actions were taken against market
participants. The enforcement actions which include caution, reprimand, fines
and suspension were imposed on dealer representatives and registered persons of
Participating Organisations.
Sanctions on market participants for breach of Business Rules
Sanctions for Breach of Business Rules |
2009 |
---|---|
Reprimand/ Fine/ Suspension |
3 |
Fine & Deferred Suspension | 4 |
Fine & Public Reprimand | 1 |
Fine/ Deferred fine with enforceable conditions | 65 |
Private reprimand/ Private reprimand & directive to rectify & fine for failing to rectify | 33 |
Caution | 27 |
Total | 133 |
The offences included infringements relating to lapses in supervisory and compliance functions, contract amendment breaches, day trading breaches, market offences and inaccurate financial reporting.
“As with PLCs, we are placing strong emphasis on education and engagement to improve the compliance performance of market participants and their registered persons,” said Selvarany.
CONTINUED INVESTMENT IN REGULATION
“At Bursa Malaysia, we have a sound framework and effective methodologies to carry out the wide range of regulatory responsibilities that are part of being a market operator. The regulatory challenges that we face are like the markets themselves, dynamic and constantly changing. We recognise this, and we are consistently developing and enhancing our processes and structure to be responsive to the demands of the ever-evolving business and regulatory environment.
“We devote an extensive amount of resources to ensure that our regulatory approach continues to be relevant and in sync with market developments. We will maintain this momentum in the interest of protecting market integrity and ultimately, contributing towards the growth of the Malaysian economy,” Selvarany said.