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Bursa Malaysia previously known as Kuala Lumpur Stock Exchange dates back to
1930. When the Singapore Stockbrokers' Association was set up as a formal
organisation dealing in securities in Malaya. The first formal securities business
organisation in Malaysia was the Singapore Stockbrokers' Association, established in
1930. It was re-registered as the Malayan Stockbrokers' Association in 1937.
The Malayan Stock Exchange was established in 1960 and the public trading of shares
commenced. The board system had trading rooms in Singapore and Kuala Lumpur,
linked by direct telephone lines.
In 1964, the Stock Exchange of Malaysia was established. With the independence of
Singapore from Malaysia in 1965, the Stock Exchange of Malaysia became known as
the Stock Exchange of Malaysia and Singapore. In 1973, currency interchangeability
between Malaysia and Singapore ceased, and the Stock Exchange of Malaysia and
Singapore was divided into the Kuala Lumpur Stock Exchange Berhad and the Stock
Exchange of Singapore.
In 1988, the KLSE launched the Second Board for the listing of smaller companies with
good growth prospects to gain access into the stock market.
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1n 1993, the Central Depository System was implemented with the aim of scriptless
based system into a book entry system.
In 1998, as one of the attempts to weather the 1997 Asian financial crisis, it fully
suspended the trading of CLOB (Central Limit Order Book) counters.
CLOB
SES established Clob in Jan 1990, after Malaysia unilaterally delisted all
Malaysian shares from the SES, the KLSE objected strongly. It declared publicly
that Clob was an unrecognised market, and warned investors of the dangers in
trading Malaysian shares on Clob.
As at 31 Aug 98, 197,000 investors held Malaysian shares on Clob. 90% were
Singaporean investors.
Even after the SES had given repeated assurances to investors that their shares
were not worthless, shares on Clob continued to trade at a deep discount 1 to
prices on the KLSE. Once the Malaysian measures were announced, nothing the
SES did could prevent a decline of share prices on Clob. Many investors
evidently preferred to sell their shares on Clob and receive the proceeds in S$,
rather than wait to dispose of their shares on KLSE and retain their proceeds in
Ringgit accounts in Malaysia for one year, as required under the new Malaysian
rules.
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a secondary market in Singapore that traded mainly Malaysian stocks. In its
heyday, transactions on the CLOB far exceeded the transaction volumes for
Singapore shares listed on the main board of the Singapore Stock Exchange. At
one time market value of CLOB shares was between US$15 and $20 billion.
Malaysia’s second stock exchange was approved under the Securities Industry
Act 1983 (SIA) in October 1997 to provide a liquid market for the shares of high
growth and technology companies. It was designed to cater for technology
based companies and companies with strong growth potential but do not have a
profit track record.
On 14 April 2004, Kuala Lumpur Stock Exchange was renamed Bursa Malaysia
Berhad, following the demutualisation exercise, the purpose of which was to enhance
competitive position and to respond to global trends in the exchange sector by making
themselves more customer-driven and market-oriented. It consisted of a Main Board, a
Second Board and MESDAQ with total market capitalisation of MYR700 billion (US$189
billion).
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In January 2004, the Kuala Lumpur Stock Exchange’s (KLSE), now Bursa Malaysia
Bhd, demutualisation took effect. It became a public company as opposed to a company
limited by guarantee previously, and became known as KLSE Bhd. Remisiers owned a
10% stake and the government 30%.
At the time, its chairman Datuk Mohd Azlan Hashim had said, “KLSE will continue to
focus on its roles as front-line regulator and market operator. It will continue to balance
commercial objective with public interest.”
That was 13 years ago. Today, Bursa Malaysia Bhd is a listed entity. To what extent
has it played its twin role of being a regulator as well as a listed company driven by
profits?
With the conversion, the existing KLSE will vest and transfer its stock exchange
business to a new wholly-owned subsidiary whilst the demutualised KLSE will become
the Exchange Holding Company.
With the conversion, the shareholding structure of KLSE Bhd as approved by the
Minister of Finance was as follows:
Remisiers 10%
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CAPITAL MARKET SERVICE ACT 2007
Section 2 of the Capital Market and Services Act 2007 (CMSA) defines securities as:
Section 11(3): in case of conflict of interest; public interest prevail over its interest as a
corporation.
Control in shareholding
Requires that any person who enters into an agreement to acquire more
than 5% of the nominal value of all the voting shares should first obtain the
approval of the Minister of Finance.
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It is against the best interest to allow an individual or a small group to
control the exchange.
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ii. to protect market integrity and investors by imposing rules on
business conduct; and
iii. to maintain a fair, efficient, and reputable public market.
In 2009, the SC issued a new set of quantitative Equity Guidelines for listing on the
stock exchange. The stock exchange or Bursa Malaysia (BM) is categorized into the
Main Market and the ACE Market (Access, Certainty & Efficiency).
In order to qualify to be listed in the Main Market of BM, the company must have
passed one of the three (3) capital test, that is, the -
1. Market Capitalisation Test:
b. Incorporated and generated operating revenue for at least one full financial
year prior to submission of application.
2. Profit Test:
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b. Profit after tax of at least RM6 million for the most recent full financial
year.
b. The concession or license for the infrastructure project has been awarded
by the govt. or state agency, in or outside Malaysia, with remaining
concession or licence period of at least 15 yrs.
Public Spread:
At least 25% of the Company's share capital must be in the hands of the public;
and
Minimum of 1,000 public shareholders holding not less than 100 shares each
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Aspects Main Market
Core Business An identifiable core business which it has majority ownership and
management control.
Core business should not be holding of investment in other listed
companies
Financial Position & Sufficient level of working capital for at least 12 months;
Liquidity Positive cashflow from the operating activities for listing via profit test
and market capitalisation test; and
No accumulated losses based on its latest audited balance
sheet as at the date of submission
Morotorium on shares Promoters' entire shareholdings for six months from the date of
admission
Subsequent sell down with conditions for companies listed under
Infrastructure Project Corporation test
Transaction with Must be based on terms and conditions which are not
Related Parties unfavourable to the company
All trade debts exceeding the normal credit period and all non-trade
debts, owning by the interested persons to the company or its
subsidiary companies must be fully settled prior to listing
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PROSPECTUS
Introduction
A public company can raise capital funding by inviting the public to subscribe to its
securities. The securities can only be offered through the issue of a prospectus.
New regulation
Beginning 28 September 2007, the framework for fund raising activities, as part of the
SC’s push for investor protection, is a disclosure-base system of regulation. The aim
is to achieve the following objectives:
ii. To create an efficient and active private debt securities market through the
banking system.
This new regulation calls for any public invitation or proposal to offer for subscription or
purchase of securities through the issuance of a prospectus that has been registered
and approved by the SC.
A prospectus containing detail information about the company and its securities
must be prepared.
Offences
ii. To apply for listing on the stock exchange (BM) – s. 212 (2) CMSA
Punishment
(NB: If company does not maintain the capital requirements after listing, it will be
classified as a PN4 and can subsequently be delisted. Practice Note 4 – means a
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company that is in poor financial condition and is required to restructure to revive or
face delisting.)
To invite the public to subscribe for its securities the company must first comply with the
rules and requirement concerning prospectus.
As of 1st July 2000, under the SCA, the authority to register and approve prospectuses
is given to the SC and not to CCM.
i. S.232 (1) CMSA- A person shall not issue, offer for subscription or purchase or
make an invitation to subscribe for or purchase, any securities UNLESS it first
registers a prospectus that complies with the provisions of the SCA; and
ii. S. 232 (2) CMSA- Requires a company to ensure that a copy of the registered
prospectus accompanies ANY FORM OF APPLICATION for securities.
Offence - failure to comply with the above, a RM1 million fine or imprisonment not
exceeding 10 years or both.
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• IPOs, PDS, collective investment schemes
• Securities issuance for schemes and acquisition
• Listing and quotation
• Distribution on winding-up
• Acquisition & disposal causing change
in business direction
S.232 - SC is the registering authority for prospectuses of corporations other than
unlisted recreational clubs.
s. 236. (1) …prospectus must contains all such information that investors and
their professional advisers would reasonably require, and reasonably expect to
find in the prospectus, for the purpose of making an informed assessment of–
(a) the assets and liabilities, financial position, profits and losses and prospects of the
issuer and, in the case of a unit trust scheme or prescribed investment scheme, of the
scheme;
(c) the merits of investing in the securities and the extent of the risk involved in doing so.
ii. Statement declaring that the prospectus has been registered with SC.
iii. Disclaimer which states that registration does not imply that SC has
recommended the securities nor that SC assumes responsibility for the
correctness of any statement made in the prospectus.
Prospectus Guidelines
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a. the purpose of the public offering;
b. the terms and conditions of the public offering;
c. the details on pricing of securities;
d. the brokerage arrangements and commissions;
e. the disclosure of the interests of, and the fees payable to, certain people involved
with the offer;
f. the information in relation to the assets and liabilities;
g. the financial position, profit and losses and prospects of the issuers;
h. the rights attaching to the securities;
i. the merits of investing in the securities and the extent of the risk involved in doing
so.
S238. (1) (b) …where a prospectus has been registered but before the issue of
securities, and where the issuer becomes aware that–
i. there has been a significant change affecting a matter disclosed in the
prospectus;
iii. the prospectus contains a statement or information from which there is a material
omission.
S238 (2) state that as soon as practicable after becoming aware of a matter, the
issuer shall submit a supplementary or replacement prospectus to the
Commission for registration.
Supplementary prospectus is issued when a prospectus has been registered but before
the issue of securities, and where the issuer becomes aware of a:
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i. New matter or information has arisen which should have been disclosed at
the time the main prospectus was prepared.
ii. There is a significant change affecting a matter that has been disclose in
the main prospectus;
iii. Material statement or information in the main prospectus was false or
misleading;
iv. Material omission of statement or information in the main prospectus.
Criminal liability will attach to the person who authorizes or causes the issue of a
prospectus which contains false or misleading statements.
Criminal liability – S. 246 (3) CMSA provides that a person who contravenes
s246 (1) commits an offence and shall, on conviction, be liable to a fine not
exceeding RM3 million or to imprisonment for a term not exceeding 10 years or
to both.
ii. Civil liability for misleading or deceptive acts – S. 249 CMSA - If a person
subscribes for securities on the basis of a defective prospectus and suffer loss or
damage as a result, he may recover the amount loss or damage against the
issuer of the securities and others involved in the preparation of the prospectus.
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Section 58. (1) No person shall whether as a principal or agent, carry on a business in
any regulated activity or hold himself out as carrying on such business unless he is the
holder of a Capital Markets Services Licence or is a registered person.
Section 59. (1) No person shall act as a representative in respect of any regulated
activity or hold himself out as doing so unless he is the holder of a Capital Markets
Services Representative’s Licence for that regulated activity or is a registered person
with respect to that regulated activity.
Section 59 (2) Any person who contravenes subsection (1) commits an offence and
shall, on conviction, be liable to a fine not exceeding five million ringgit or to
imprisonment for a term not exceeding five years or to both.
DEALING IN SECURITIES
Securities
The generic term for any instrument traded on the stock exchange
It is a transferable instrument evidencing ownership or creditorship
An organisation providing the market-place or facility for the buying and selling of stocks
and shares
Duties
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→Ensures that Participating Organizations and listed companies comply with the Rules
of the Exchange
Types of Securities
Ordinary shares
Preference shares
Bonds
Loan stocks
Debentures
Property trust units
Warrants
Call Warrants
In the event of breach of LR by a listed issuer or its directors, the BSLR may, after
consultation with SC, take or impose such actions or penalties as it considers
appropriate.
• Suspension of trading
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Common Breaches of BSLR
• Late submission of annual audited accounts together with auditors’ and directors’
report
Example: Articles: 1
Paragraph 9.23 of the Bursa Securities LR states that a listed issuer must ensure that
the issuance of the annual audited accounts and annual report by a listed issuer shall
be as follows:-
(a) the annual report shall be issued to the listed issuer’s shareholders and given to
Bursa Securities within a period not exceeding 6 months from the close of the financial
year of the listed issuer; and
(b) the annual audited accounts together with the auditors’ and directors’ report shall, in
any case be given to Bursa Securities for public release, within a period not exceeding 4
months from the close of the financial year of the listed issuer unless the annual report
is issued within a period of 4 months from the close of the financial year of the listed
issuer.
BKATIL was found to be in breach of the following provisions of the Bursa Securities
LR:-
(a) Paragraph 9.23(a)
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BKATIL has failed to submit the annual report for the financial year
ended ("FYE") 30 June 2004 ("AR 2004") by the due date of 31 December
2004.
(b) Paragraph 9.23(b)
BKATIL has failed to submit the annual audited accounts for the FYE 30
June 2004 ("AAA 2004") by the due date i.e. 31 October 2004.
The public reprimand and fine were imposed pursuant to paragraph 16.17 of the Bursa
Securities LR after taking into consideration all relevant factors, including the fact that
BKATIL has previously breached the Bursa Securities LR. Bursa Securities further
directed BKATIL to furnish the AAA 2004 and AR 2004 for public release within one (1)
month from the date of penalty imposed.
The CMSA is a consolidation of the Securities Industry Act 1983, Futures Industry Act
1983 and Part 4 & 4A, SCA 1993.The CMSA now regulates fund raising activities of
companies.
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Approving and registering of company prospectuses.
Acts include:
Capital Markets Services Act (“CMSA”)
Securities Commission Act (“SCA”)
Securities Industry Central Depository Act (“SICDA”)
SC Guidelines and Directives
Beside this the stock exchange is also a place that offers marketability of
securities i.e. those securities that are listed are more marketable that those not
listed.
Acts include:
Rules of Bursa Securities
Rules of Bursa Derivatives
Rules of Bursa Depository Listing Requirements
Bursa Guidelines and Directives
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regulates the management of the financial system and monetary policy
Payment system involved in trading of shares is important to ensure that the
monies are received when due.
A good payment system provides confidence to the financial market and
encourage trading of the bonds and share
Acts include:
Bank & Financial Institutional Act (BAFIA)- now FSA
Anti Money Laundering (AML) and Anti Terrorism Financing Act
- Monies are easily laundered through the stock market
- BNM will need to monitor the KLSE very closely to ensure no AML
activity.
BNM Guidelines and Directives
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Tutorial 3: Stock Broking Industry
Tutorial Questions:
3. Discuss the various regulatory agencies involved in regulating the stock broking
activities.
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