Chairman s Statement

Chairman s Statement

In 2004, all key sectors of the Malaysian capital market were further strengthened, driven by the momentum set in 2003. This enabled the Commission to pursue the next phase of the capital market developmental agenda. The focus of most of our activities was on further improving market liquidity, promoting value creation and operational efficiency among intermediaries and improving our network internationally. Needless to say, surveillance and enforcement activities also kept us very busy throughout the year. Our activities in 2005 will continue to underscore our dual responsibility in developing and regulating the Malaysian capital market. From a developmental perspective we have identified a further set of CMP recommendations for implementation in 2005. As we move further into the DBR environment, our regulatory efforts will focus on post-approval surveillance and enforcement. In allowing issuers and intermediaries to have easier access to the capital market, we are placing our trust on their integrity and professionalism. However, if they breach that trust we will take them to task. To achieve these objectives, we will continue to strengthen our capacity and capabilities. In particular, we will enhance our resources and skills, and leverage on IT to ensure that we are able at all times to effect credible surveillance, investigation and enforcement, while pursuing the CMP recommendations. Market Performance in 2004 The year 2004 saw 72 IPOs which raised a total of RM4.0 billion, as against 58 which raised RM4.0 billion the year before. As at end-2004, there were 963 listed companies with a total market capitalisation of RM722 billion, an increase of 57 companies (2003: 906) and a gain of 13% in market capitalisation from 2003 (market capitalisation as at end-2003: RM640.28 billion). New issuance of PDS in 2004 totalled RM36.3 billion compared to RM51 billion in 2003, while issuance of government bonds remained high at RM49 billion compared to RM46.3 billion in 2003. Average daily trading value on Bursa Malaysia increased to RM980 million from RM840 million in 2003. Market volatility declined over the same period. Derivatives market activity also continued to improve. Average monthly trading volume in KLCI futures rose by approximately 230% from 27,602 average monthly trading volume in 2003 to 90,702 in 2004. Average monthly trading volume in 3-year MGS futures rose by about 85% from 195 to 361 contracts. Initiatives and Achievements in 2004 Against the backdrop of steady improvement in both primary and secondary market activities, the Commission was able to effectively pursue our developmental, regulatory and operational agenda for 2004, while strengthening our networks internationally. I am happy to note that there was considerable improvement in both fund-raising and secondary market trading activities in 2004, despite continuing uncertainty in the global market. Continuing the Developmental Agenda The year 2004 was a transition year in the implementation vi

of the CMP. We moved from the initial phase (2001 2003) to the next phase (2004 2005). We saw major programmes initiated in the initial phase coming to fruition, even as we further initiated new programmes aimed at enhancing market liquidity, promoting value creation and strengthening global networks. The demutualisation of the exchange and the establishment of the CMDF in the early part of the year were significant capital market milestones which set the stage for other developmental efforts. To further liberalise market access and enhance international compatibility and connectivity, the policy of allowing five foreign stockbroking companies and five foreign fund management companies to operate in Malaysia was announced. Equity ownership was also liberalised for VCCs, as well as for futures brokers, futures fund managers and futures trading advisers. Concurrently, further measures to increase the level of competitiveness of stockbrokers were also implemented. Key measures included a more liberal branching policy and a more flexible capital framework. To further increase the depth and breadth of the market, a facilitative framework for issuing ringgit bonds by supranationals was introduced. This showed almost immediate results with the issuance of ringgit-denominated bonds by the Asian Development Bank and International Finance Corporation towards the end of the year. On the derivatives market, the crude palm kernel oil futures contract was introduced while in the area of collective investments, several tax transparency measures to reinvigorate REITs were announced. Consistent with our objective of leveraging on technology to enhance access to and quality of capital market products and services, the Guidelines on Online Transactions of and Online Activities in Relation to Unit Trusts were introduced. The Malaysian ICM also saw significant developments in 2004. The Guidelines on the Offering of Islamic Securities were introduced to facilitate the development of a wider range of innovative and sophisticated capital market products, particularly those based on the Syariah principles of mudharabah or musyarakah. Pre-IPO assessment of Syariah compliance, as well as measures to ensure greater tax neutrality for Islamic debt securities were also introduced. The Commission also continued to play a prominent role in promoting the importance of the ICM globally. During the year, IOSCO published a report driven by a Commission-led task force on issues related to the development of the global ICM. The Regulatory Agenda Strengthening Frameworks, and Intensifying Surveillance and Enforcement Actions Surveillance and enforcement remain the core of the Commission s regulatory role. In 2004, our efforts were focused on strengthening the regulatory framework, enhancing institutional capacity and arrangements, and intensifying enforcement actions for a wide range of securities offences. The framework for the enforcement of securities laws was substantially enhanced to allow for more effective action on corporate improprieties. Provisions significantly strengthening corporate governance and investor protection were introduced at the beginning of the year, including whistle-blowing, and wider civil and administrative actions. The Commission established the Post-Approval Surveillance Action Team (PASAT) to step up vigilance on the quality of information submitted and disclosed. Further, a tripartite High-Level Enforcement Committee on Corporate Governance chaired by the Commission was established by the Prime Minister. This committee provides a high-level platform for sharing of information with the CCM and Polis Di-Raja Malaysia to facilitate investigations into corporate crimes. In addition, a dedicated court for capital market offences as proposed by the Commission was approved. Enforcement actions were intensified. Key actions included the criminal prosecution of professional advisers of PLCs for flouting corporate disclosure-related laws, as well as of vii

directors of companies for securities fraud and misutilisation of funds. pre-emptive actions will be used, given the higher levels of accountability and integrity that are necessary as we move further into the DBR environment. Enhancing Operational Efficiency Continuing the re-engineering of internal management and processes led to a further substantial reduction in the processing time of corporate proposals, resulting in shorter time-to-market for various fund-raising activities. Meanwhile, prudent management of the Commission s administrative and personnel expenses further enhanced operational cost-effectiveness. Strengthening Our Networks Internationally The Commission maintained a strong international presence in 2004, continuing to play a lead role in IOSCO, and being involved in the work of ASEAN, ASEAN+3, APEC and WTO. The Commission had been both a contributor to, as well as a beneficiary of international capital market-related activities, such as the ASEAN+3 Bond Market Initiative, the OECD Asian Roundtable on Corporate Governance and the APEC Financial Regulator s Training Initiative. Moving Forward in 2005 Following on from the initiatives and achievements of 2004, the Commission will continue to implement identified programmes in the CMP in 2005. The Commission will also facilitate the transformation of industry business models to help market intermediaries cope with competitive challenges posed by a dynamic and changing financial landscape. To strengthen the position of the market regionally, the Commission will focus on improving the market framework and creating a more conducive environment for shareholder value creation. The Malaysian capital market must also become internationally competitive. This hinges on addressing issues of compatibility in order to have greater connectivity with the rest of the world. The Commission will continue to work closely with regulatory counterparts and participate actively in international fora. We will further leverage on our areas of strength, such as the ICM, and education and training. Even as we continue to implement the CMP, we will ensure that we remain prepared and sufficiently agile to meet the demands of changing circumstances and unanticipated events. To this end, we will continue to enhance organisational effectiveness through continuous business reengineering. Major projects that will be undertaken include enhancing risk management, managing intellectual capital and strengthening internal processes, as well as further leveraging on IT to enhance capacity, capability and effectiveness. In particular, we will continue to focus on visible and credible surveillance and enforcement to further promote market integrity and build investor confidence. Enforcement capacity will be further augmented in terms of skill sets, and by leveraging on technology, we will be well-equipped to anticipate market threats, detect and deter corporate transgressions, and further improve discipline among market players. We will not hesitate to use the range of enforcement powers available to us. Where necessary, Conclusion The CMP continues to steer the work of the Commission not only in developing but also in protecting the integrity and improving the quality of the Malaysian capital market. Industry players should strive to position the market well, leverage on strengths, and meet international standards and requirements. The Commission, in turn, will embrace viii

continuous organisational change and transformation, and be progressive, dynamic and flexible in facing the challenges of a changing financial and regulatory landscape. Last but not least, I would like to thank the staff of the Commission for their hard work which has enabled the Commission to grow from strength to strength. Members of the Commission and SAC have continued to selflessly share their time and expertise in guiding the Commission. I thank them for their dedication and commitment. MD NOR MD YUSOF January 2005 ix