Demutualisation of Bursa Malaysia

Kok Chee Kheong discusses the amendments to the Securities Industry Act to safeguard public interest arising from the proposed listing of the KLSE on the MSEB

 

 

Introduction

In the inaugural issue of LEGAL INSIGHTS, we examined the process by which the demutualisation of the Kuala Lumpur Stock Exchange ("KLSE") was achieved.

 

In line with the recommendations in the Capital Markets Masterplan, various securities laws were amended to pave the way for the listing of the KLSE on the stock exchange operated by its wholly-owned subsidiary, Malaysia Securities Exchange Berhad ("MSEB").

 

Among the concerns that arise from the proposed listing of the KLSE on the MSEB is the ability of the MSEB to exercise effective oversight over its holding company and the manner in which conflicts of interest that arise from such a relationship will be dealt.

 

We will now examine the manner in which these issues have been dealt with in the amendments to the Securities Industry Act 1983 ("SIA") which came into effect on 5th January 2004.

 

 

Oversight Provisions

 

Right to Administer Listing Requirements - The listing requirements are deemed to allow the Securities Commission ("SC") to make decisions and take action or require the stock exchange to make decisions and take action in respect of various matters. These matters include dealing with conflicts that arise from the listing of the exchange holding company on the stock exchange, ensuring compliance by the exchange holding company with its obligations as a listed corporation, the suspension of trading and delisting of the securities of the exchange holding company (Section 11I(2)).

 

Modification of Listing Requirements - The SC is empowered to modify the listing requirements of the stock exchange in relation to the listing and quotation or trading of the securities of the exchange holding company (Section 11I(4)).

 

Annual Regulatory Report - An exchange holding company and a stock exchange are required to submit a regulatory report to the SC within 3 months from the end of each financial year on the extent to which they have complied with their respective duties under Sections 11J and 9B and their rules during the financial year (Section 11E(1)).

 

Regulatory AuditThe SC may, upon receipt of the regulatory report referred to above, conduct a regulatory audit to determine the extent to which the exchange holding company or the stock exchange has complied with its regulatory responsibilities, duties or functions under the SIA, its rules and any securities laws (Section 11E(4)).

 

Special Report - The Minister may require an exchange holding company or a stock exchange to submit to him a special report on the extent to which it has complied with securities laws and rules (Section 11F).

 

Annual Auditor's Report - An exchange holding company is required to lodge with the SC, within 3 months after the close of its financial year or such further period as may be allowed by the SC, its auditor's report containing information on such matters as may be prescribed (Section 49).

 

Auditor's Obligation - An auditor who, in the performance of his duties as auditor of the exchange holding company, becomes aware of any matter which in his opinion may constitute a breach of any securities laws is obliged to immediately report the matter to the SC (Section 50(1)).

 

Independent Audit - Where there is a default in furnishing an auditor's report or upon the receipt by the SC of such report or a report by the auditor under Section 50, the SC may appoint an independent auditor or other person to examine and audit either generally or specifically upon the books, accounts and records of or securities held by an exchange holding company (Section 52) and to submit a report to the SC (Section 54).

 

General Obligation to Assist - An exchange holding company is required to assist the SC in the proper administration of securities laws. Such assistance includes furnishing returns and information regarding its operations and other information required by the SC (Section 10(1)).

 

Production of Books and Documents - The SC may direct an exchange holding company or a member of its board of directors to produce to the SC such of its books relating to the business and affairs of the exchange holding company or any dealings in securities as the SC may specify (Section 95).

 

 

Conflict of Interest

General Principles - An exchange holding company is obliged to act in the public interest, having particular regard to the need for investor protection. Where any conflict of interest arises between such interest and its own interest, an exchange holding company must ensure that interest of the public prevails (Section 11J(2)). An identical obligation is imposed on a stock exchange under Section 9B of the SIA.

 

Right of Intervention - The SC may direct an exchange holding company to take remedial steps where (a) a conflict exists or may arise as between the interest of such company and the interest of proper performance of such company's functions or duties, or (b) such a conflict of interest has occurred or existed and is likely to continue or be repeated (Section 11L).

 

Section 11L also applies in relation to a stock exchange, a futures exchange or a clearing house or central depository or a body corporate in which the exchange holding company, alone or with associated persons, control more than 33% of voting shares.

 

Additional Obligations Upon Listing - An exchange holding company which has been given approval by the SC for listing on a stock exchange is required to enter into such arrangements as the SC may require to deal with conflicts that may arise from its listing on the relevant stock exchange (Section 11I(1)(a)).

 

 

Other Public Protection Provisions

Public Interest Directors - An exchange holding company is required to ensure that one-third of the members of its board of directors are persons appointed by the Minister in consultation with the SC to serve as public interest directors. Further all persons, other than public interest directors, require the concurrence of the SC before accepting an appointment as a director of an exchange holding company. In addition, the Minister shall, in consultation with the SC, appoint one of the public interest directors as the non-executive chairman of the exchange holding company (Section 8D).

 

Shareholding Restrictions - Section 11O prohibits any person from entering into any agreement or arrangement to acquire voting shares of an exchange holding company, which together with any shares already held by such person and parties acting in concert with him, will amount to 5% or more of the voting shares in an exchange holding company without the prior written approval of the Minister.

 

An exchange holding company is prohibited from reducing its shareholding in a stock exchange, a futures exchange or a clearing house of a stock exchange or of a futures exchange or a central depository, as the case may be, to a level below 75% or such other percentage as may be prescribed by the Minister, of the total issued and paid-up capital without the prior written approval of the Minister (Section 11M).

 

Risk Management - An exchange holding company must ensure prudent risk management of its business and operations (Section 11J(1)(b)) and establish and maintain a risk management committee to formulate risk management policies relating to its activities and those of its subsidiaries (Section 11K).

 

 

Conclusions

The amendments to the SIA set out clearly the principles to be applied to resolve conflicts of interest that may arise from the listing of the KLSE on the MSEB. The amendments also lay down a framework that enables the SC to be the main regulatory authority to exercise oversight of the exchange holding company and the stock exchange and to intervene to resolve conflicts that may arise and ensure due compliance with securities laws and the listing requirements.

 

 

 

KOK CHEE KHEONG

29th March 2004

 
ACCOLADES & AWARDS

Skrine Retains Who’s Who Legal Accolade for Malaysia

On 15th May 2017, the Who’s Who Global Awards was held in London, United Kingdom and Skrine was conferred the Award:

Malaysia Law Firm of the Year 2017

Skrine previously received this Award in 2013, 2014, 2015 and 2016.

>> READ MORE

SKRINE Clinches Top Honours at ALB Malaysia Law Awards 2017

On 6th April 2017, the Asian Legal Business Malaysia Law Awards was held and SKRINE was named

Malaysia Law Firm of the Year 2017

SKRINE also bagged 5 other awards

>> READ MORE

Asialaw Profiles 2017

The Asialaw Profiles has ranked Skrine as Outstanding Firm and particularly highlighting the following practice areas:

Outstanding Firm

  • Competition & Antitrust
  • Corporate/M&A
  • Dispute Resolution
  • Energy & Natural Resources
  • Intellectual Property
  • IT, Telco & Media
  • Project & Infrastructure

>> READ MORE

PDPA NOTICE

English | Bahasa Malaysia