Khairul Bahyah Bt Samah ZP00784 Parini Bt Osman ZP00364 Andi Nurul Hamimah Halidek ZP00762

EVALUATE THE CONCEPT OF INVESTOR PROTECTION IN MALAYSIA. ARE THE

PRESENT LAWS ADEQUATE?

Types of investors. Concept of investor protection. Regulatory bodies responsible in investor protection. Securities Commission Bursa Malaysia Central Bank of Malaysia Current scenario of investor protection in Malaysia. Examples of cases of misconduct. Where we are now? Suggestion for improvement in investor protection. Conclusion.

Angel investors.
Invest
Have

in high-growth companies.

knowledge of the industry and also

have contacts.

Venture capitalist.
Investment

companies or fund managers

who give cash for part ownership.

Corporate investor Usually in the form of large multi-national companies. Often buy companies for long haul and dont want to exit.

Safeguarding the interest of investors. Relates to corporate governance. Why investor protection in crucial?

Important for the development of capital markets. Promotes investors confidence.

To promote market integrity.

Securities Commission (SC) Bursa Malaysia Securities Berhad (Bursa Malaysia) Bank Negara Malaysia (Central Bank of Malaysia)

Main regulator of the securities and capital market. Ultimate responsibility of protecting investor. The regulator of the Bursa Malaysia Securities Berhad.

An exchange holding company.

Committed to maintaining an efficient, secure and active trading markets for local and global investors.

Promote financial sector stability

Fostering a sound and progressive financial institutions and financial infrastructures.

Formulates and implements policies and strategies

towards building and positioning Malaysia as a premier integrated Islamic Financial Centre and enhance the financial capability of consumers.

Capital Markets and Services Act 2007

The Capital Market Master Plan (CMMP) Securities Industry Act 1983

Comes into force on 28 September 2007. the investor protection provisions of sections 91, 92, 93 and 97 (Appendix 3 of the CMSA).

The main intention to accord protection to the customers through appropriate disclosures by registered persons to mitigate conflict of interest situations. The investor protection provisions are not intended to be used by any parties to secure market advantage.

Section 91: Disclosure of certain interests in securities

Section 92: Recommendations by registered person Section 93: Priority given to clients order Section 97: Dealings as principal

Enhance protection to investor by

enhancing SC's power to take civil & administrative actions allowing the SC to recover three times the amount of losses through civil action for a wider range of market misconduct including market manipulation requiring application monies of sophisticated investors to be held on trust in fund raising exercises, and enhancing the standards of trustees for debenture holders.

Covered 2001 to 2010 plan.

SCs commitment to expand the role of capital market took into consideration many of the lessons learnt as a result of the 1997/98 Asian financial crisis.

The CMP can be characterized into three distinct phases:

9 DECEMBER 2010 Covered for 2011 to 2020 plan. to expand the role of capital market to next level.
Raise intermediary capabilities and standards of conduct Strengthen oversight of products and markets and enhance system-wide risk management

An act to make provisions with respect to stock exchanges and persons dealing in securities, and for certain offences relating to trading in securities, and for other purposes connected therewith

Enforce 7 July 1983

Part IX : Trading in Securities Division I : Prohibited Conduct Division 2 : Insider Trading Division 3 : Liability for Unlawful Activity

Early 2011 - The Securities Industry Dispute Resolution Center (SIDREC).

an alternative to the existing dispute resolution body. specifically caters for small claims (RM100,00) & disputes relating to capital market products and services. available to both local and foreign clients of capital market intermediaries in Malaysia.

09 APRIL 2008 - The Guidelines on Market Conduct and Business Practices

promote responsible conduct among stockbrokers and their licensed representatives. BODs & senior management of stock broking companies primarily responsible in ensuring adequate policies, procedures, and resources.

Key Capital Market Measures (2003)

improving retail investors participation and protection, enhance market liquidity and efficiency, easing the process for capital-raising and listing, and strengthening intermediation in the Malaysian capital market. 3rd June - Guide on Areas of Compliance and Internal Controls for Management Companies and Trustees

Key Capital Market Measures (2001)

to enhance investor protection, especially minority shareholders.

January 2001-The new Listing Requirements

enhancing corporate governance and transparency, and efficiency in capital market activities. strengthening investor protection and promoting investor confidence

to make the Malaysian capital market the preferred fund-raising venue for Malaysian companies.

Fountain View

CASES OF MISCONDUCT

Suremax

Bursa Malaysia cases

Case : manipulation of Suremax Group Berhad (Suremax) shares

7 January 2011 : Datuk Phillip Wong Chee Keong, 48, and Francis Bun Lit Chun, 41, were convicted under s84(1) of the SIA for creating a misleading appearance of active trading in the shares of Suremax by trading in nine accounts without any change in the beneficial ownership of the shares on the stock exchange DPWCK : 24 months imprisonment and a fine of RM 3million (in default 6 months imprisonment ) and FBLC : 3 months imprisonment and a fine of RM2 million (in default 6 months imprisonment)

Judge Komathy SM Suppiah : The Court has to set imprisonment terms as the new benchmark in securities cases. The securities market should be real and genuine. Market manipulation is a serious offence affecting the confidence of investors and thus imprisonment sentence should be meted out.

Case : Manipulation of Fountain View Development Bhd shares (18 November 2003 and 20 January 2004) Dato' Chin Chan Leong, 57, a former director of Fountain View : under section 84(1) of the Securities Industry Act 1983 create a misleading appearance of active trading of Fountain View shares on Kuala Lumpur Stock Exchange (now known as Bursa Malaysia Securities Bhd) through at least 20 CDS accounts which were beneficially owned by the accused through the companies that he controlled Hiew Yoke Lan, 48 a former remisier : under section 84(1) read together with section 122C(c) of the Securities Industry Act 1983 executing and relaying orders for the sale and purchase of the shares during the material time to various stockbroking firms

DCCL : fine of RM1.3 million (in default 13 months imprisonment) as well as a one-day imprisonment under section 88B of the same Act HYL : was fined RM1 million (in default 10 months imprisonment)

engaging in intra-day short selling which was carried out by the DR in his siblings account, the DRs dealing activities was not closely monitored by the PO and the DR continued with his intra-day short selling activities sales of shares were carried out by the DR when the clients account did not have the requisite tradable balance of the shares for the sale transactions to be carried out PO has subsequently implemented corrective action by suspending the DRs dealing activities and establishing a monitoring mechanism thereafter to identify possible short selling activities on the next trading day DR was imposed a fine of RM10,000 and a deferred suspension (6 months suspension deferred for 2 years).

Strength

Ease of SHs suit Liability for Self-Dealing

Transparency

The World Bank Group's report on Doing Business 2010

Strength of Investor Protection

Securities Industry Act 1983 Securities Commission Act1993 Capital Market and Services Act 2007 Capital Market Master Plan 1 and 2
Asian Countries
Protection index (0-10) (Yr. 2010)

Singapore Hong Kong Malaysia

9.3 9.0 8.7

Japan
Thailand Indonesia India

7.0
7.7 6.0 6.0

Korea
Cambodia China Philippines

5.3
5.3 5.0 4.0

Vietnam
Laos

2.7
1.7

Transparency of Transactions
Extend of disclosure principles
helps the public to understand the companys activities, policies and performance with regard to environmental and ethical standards as well as the relationship of the company with the stakeholders and communities which are affected by its operation
Asian Countries
Extent of Disclosure Index 1-10 (Yr. 2010)

Singapore Hong Kong Malaysia Thailand China Indonesia Japan India Korea Vietnam Cambodia Philippines Laos

10 10 10 10 10 10 7 7 7 6 5 2 0

Liability for Self-dealing

Directors can use their powers to make a profit for themselves at the expense of the company self-dealing case cause minority shareholders to lose out & decrease value of investment
refrain from exercising those powers for their personal benefit, and to consider the paramount interest of the company
Asian Countries
Extent of Director Liability Index 1-10 (Yr. 2010)

Singapore Malaysia Cambodia Hong Kong China Thailand Japan Indonesia India Laos Korea Philippines Vietnam

9 9 9 8 1 7 6 5 4 3 2 2 0

Shareholders Ability to Sue Officers & Directors for Misconduct

Related to cases of directors self-dealing and misconduct These kind of activities make them lose or decrement in value of their investments
Asian Countries
Singapore Hong Kong Japan Philippines Ease of shareholder suits index (0-10) (Yr. 2010) 9 9 8 8

India
Korea Malaysia Thailand China Indonesia Vietnam

7
7 7 6 4 3 2

Cambodia
Laos

2
2

 Regulators must be more aggressive in ensuring consistent investor protection for all capital market products and services Instill awareness among investors and educate them on their rights

Broaden participation in governance

The regulators has been proactively protect investors and handle market misconduct cases because such activities will severely undermine investor confidence and tarnishes the reputation of the Malaysian capital market. Regulators should continue to be vigilant and take whatever action necessary to protect investors and to maintain a fair and orderly capital market.