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Kuala Lumpur Stock Exchange Strengthened Regulations To Enhance Corporate Governance

Date 12/11/2001

Kuala Lumpur Stock Exchange continue to focus efforts to improve the level of corporate governance by strengthening regulations through the new Listing Requirements.

KLSE Executive Chairman Dato' Mohd Azlan Hashim said the Listing Requirements, launched in January 2001, involved an extensive process meticulously conducted taking into account the views and feedback of the industry.

"The new Listing Requirements strengthened provisions in areas relating to disclosure, corporate governance, continuing listing obligations, financial reporting and enforcement," Mohd Azlan said at a press conference after the KLSE's 25th Annual General Meeting (AGM).

The KLSE's 25th AGM was successfully completed, with:-

  • The minutes of the 24th AGM held on 25th November 2000 confirmed.
  • The report of the Committee, the income and expenditure accounts for the year ended 30 June 2001 and the balance sheet as at 30 June 2001 together with the auditors report were all adopted.
  • Arthur Andersen & Co. re-elected as auditors of the exchange.
  • Encik Abdul Rauf bin Ramli and Datin Mariam Prudence Yusof have been elected to the KLSE Committee for a two year term with effect from 1 January 2002.
  • Committee Members Mr.Chan Guan Seng and Tuan Haji Abdul Wahab Nan Abidin will retire from the KLSE Committee with effect from 31 December 2001.
  • KLSE also convened an Extraordinary General Meeting following the AGM to amend the Exchange's Memorandum of Association for the establishment of the proposed revolving fund.
  • With measurable progress in the financial position and restructuring efforts by the stockbroking industry, stockbroking member companies are of the view that the proposal is no longer necessary.
  • In view of the changed circumstances, the resolution has not been passed by stockbroking member companies.
In reviewing the financial year, Mohd Azlan said alongside the effort to improve the level of corporate governance, KLSE continued to step up efforts in the areas of:
  1. Regulations
  2. Infrastructure
  3. Development of Stockbroking Companies
  4. Development of Market Institutions
  5. Investor Education and Training
  6. International Relations
1. Regulations

In strengthening regulations through the new Listing Requirements, the requirements codified unwritten rules and procedures relating to listed companies, simplified requirements and processes, clarified requirements, removed ambiguities and adopted international best practices and standards in listing rules. Under the new Listing Requirements, listed companies, their advisers and directors are now subject to a higher standard of responsibility and accountability.

With the new Listing Requirements, practice notes were issued where necessary, detailing administrative and operational procedures for compliance. Mohd Azlan said of particular significance is Practice Note 4/2001 relating to the requirement that listed companies must maintain a satisfactory financial condition.

"There are now 95 public listed companies under Practice Note 4, with 56 companies which have made the requisite announcement for restructuring, and 39 in the process of doing so.

"As you are aware, in the Budget 2002, it has been announced that companies with unsatisfactory financial position are given up to December 2002 to comply with the KLSE Listing Requirements," he said.

On the requirement of training for directors of public listed companies, since the commencement of the Mandatory Training Programme in April 2001, over 3000 directors have been trained to date under this programme.

The new Listing Requirements provides for enhanced capability to enable more effective enforcement of the Listing Requirements. KLSE's surveillance and enforcement efforts now include the review of financial statements, including the annual reports and quarterly reports of all listed companies.

"As at financial year end 30 June 2001, total action taken for breaches of Listing Requirements amount to 119, with cases ranging from caution and impress, private reprimands to public reprimands and fines," Mohd Azlan said.

2. Infrastructure

On infrastructure development, KLSE has made continuous enhancements to meet investor requirements and expectations in-line with internationally accepted practices. KLSE's infrastructure are comparable to many of the developed exchanges, in offering fully immobilised securities, T+3 settlement system, delivery versus payment, quarterly reporting and general compliance with international accounting standards.

A significant development for the financial year was to enhance delivery versus payment environment with the implementation of the Institutional Settlement Service for Direct Business Transactions or ISS-DBT in July 2001.With ISS-DBT,local and foreign institutional investors continue to have access to a secure and efficient clearing and settlement system.

Another infrastructure enhancement was the electronic management of Provisional Allotment Letters (PALS) implemented in January 2001. The immobilisation of PALS enables listed companies to have speedier access to their funds raised from rights issue whilst investors, in turn, have speedier access to their rights issue securities.

3. Development of Stockbroking Companies

On the on-going development to establish financially stronger and more competitive full service stockbroking companies, KLSE continued to implement measures to:

  • Strengthen the financial position of stockbroking companies
  • Encourage greater compliance to prudential standards
  • Improve vigilance in risk management
In line with the successful consolidation and restructuring efforts, the number of stockbroking companies under trading restrictions was reduced from 8 to 1 during the financial year. For the financial year, stockbroking companies increased aggregate reserves by RM1 billion - converting a negative position to a positive RM900 million in aggregate reserves. Meanwhile, shareholders funds increased by 500 million to RM8.1 billion.

In supervising compliance by stockbroking companies, KLSE took disclipinary actions against 10 dealers' representatives and 2 stockbroking companies for the financial year.

4. Development of Market Institutions

In advancing the development of market institutions, KLSE is committed to implementing the recommendations of the Capital Market Masterplan (CMP) in a practical and expeditious manner, for the overall benefit of the industry.

Part of the recommendations in the CMP is the consolidation of exchanges. With the establishment of Malaysia Derivatives Exchange in June 2001, KLSE completed the integration of the Kuala Lumpur Options and Financial Futures Exchange and the Commodity and Monetary Exchange of Malaysia as an integrated derivatives exchange. KLSE has also signed a Memorandum of Understanding with MESDAQ in June 2001 for MESDAQ to join the KLSE Group.

Moving forward, the CMP's recommendation includes the establishment of a common trading platform and a common clearing and settlement platform across all exchange-traded products.

This move is intended to facilitate a single integrated access for investors to an integrated exchange that is able to offer a wide range of products.

On disclosure based regulation, the move is to provide a more efficient framework for corporations to raise capital, in the shortest time possible, without compromise to investor protection.

5. Investor Education and Training

On investor education and training, KLSE continues to enhance information and facilities for the benefit of all investors. The continued ability of investors to participate in the KLSE is important to the exchange, as an informed investor is a more prudent investor.

For the financial year, regular informed investing talks were conducted at the regional public information centres, drawing a total audience of over 5,000 participants from a cross section of academics, professionals, students, industry participants and investors. For the same period, over 52,000 visitors used the resources and facilities at the public information centre in Kuala Lumpur and the network of regional Balai Maklumat BSKL in Johor, Penang, Kuantan and Kuching.

Other significant events in investor education include the KLSE's Investors Week 2000 and 2001, which continue to receive exceptional response. For Investors Week 2001, the programme content was expanded to include overview of the Malaysian Securities Market, Principles of Informed Investing, Investor Rights and Investments based on conventional and Syariah principles. KLSE also contributed to industry investor education efforts throughout the country organised by Permodalan Nasional Berhad, Securities Commission and other industry participants.

6. International Relations

Even as KLSE concentrated efforts on the national securities industry and stockmarket, there was no let up in strengthening international relations.

KLSE has established an International Communications Team or ICT to focus on:

  • Enhancing dissemination of comprehensive and accurate industry and market information to the international media; and
  • Fostering more open and active communications with the foreign investment community, including fund managers.
"For the financial year, ICT has co-organised roadshows in Tokyo, Taipei, Hong Kong and Singapore with leading international stockbroking and investment banking groups, with participation form senior representatives from KLSE, Securities Commission and Bank Negara Malaysia," Mohd Azlan said.

He added KLSE continues to be actively involved in international organisations such as the International Federation of Stock Exchanges, East Asian and Oceanian Stock Exchange Federation, Asia Pacific Central Securities Depository and Asian Securities Analysts Federation.

"KLSE's active participation in these international organisations has enabled the KLSE Group to be in the forefront of rapid developments taking place in securities markets around the world," Mohd Azlan said.

In completing his overview of the KLSE Group, Mohd Azlan said regulatory and developmental efforts, as well as enhancing investor education and international relations by KLSE, will have a positive impact on the industry.

"KLSE believes these efforts will continue to improve and expand the securities industry and make it more competitive and attractive to all participants and investors," he said.