A balanced, effective and comprehensive regulatory framework that is benchmarked internationally is necessary for a robust and growing market. We continuously review our Rules for this purpose and should changes be required, we ensure they are made in a consultative, transparent and timely manner.

Thus, our 2011 rule amendments for listed issuers have continued to focus on enhancing protection for investors, alongside inculcating a culture of greater transparency in disclosure. In the participants' space, we accorded greater flexibility in terms of how they conduct their business and operations. At the same time, we strengthened the framework for their capital and risk management practices.

Our key rule-related initiatives included:

• Amending the Listing Requirements (LR) in order to:
  
  
  1. improve the quality of information for financial reporting;.
  
  
  2. improve disclosure by listed issuers in areas of related-party transactions, poll voting, corporate proposals, boardroom/senior management/external audit announcements;
  
  
  3. accord greater flexibility to listed issuers in structuring share schemes for employees;
  
  
  4. promote greater transparency in respect of share schemes for employees which do not involve issuance of new shares;
  
  
  5. facilitate listed issuers to pay dividends in shares to their shareholders through a “Dividend Reinvestment Scheme”; and
  
  
  6. promote greater efficiency in the market by allowing listed issuers to buy back odd-lot shares through direct business transactions.
  
  
• Enhancing investor protection through amendments to the LR relating to privatisation of listed corporations via disposal of major assets.


• Expanding the categories of witnesses for CDS (and trading) account opening documents to include dealers' representatives from recognised stock exchanges, lawyers, commissioners for oath and justices of the peace.


• Liberalising the rules relating to market intermediaries outsourcing arrangements.
  
  

We remained committed to facilitating an efficient framework to approve capital-raising exercises by PLCs. In addition to ensuring timeliness of our approvals, we also made sure that investors were provided with adequate and material information in our announcements and circulars, to facilitate investment or voting decisions through our review of the said announcements and circulars.

We undertake surveillance of trading activities on our market and use various techniques and approaches to detect activities that could undermine the operation of an orderly and fair market, such as real-time alerts from our surveillance system; analysis of orders and trades based on certain criteria; information from market intelligence; and various other analytical tools. When trading concerns are detected, we undertake various regulatory actions depending on their severity and scale.

These regulatory actions can range from engagement with the brokers, issuance of Unusual Market Activities (UMA), market alerts, designation or referral to our Investigation Division or to the Securities Commission (SC), if there are breaches of our rules or securities laws. We take a proactive stance in engaging with brokers individually and from time to time we take steps to highlight unacceptable trading practices and to discuss good trading practices. We believe such proactiveness has been effective in raising the awareness levels of brokers on the standards of business and vigilance expected.

We also conduct corporate surveillance, in that we monitor activities and developments among PLCs to detect any non-compliances with the LR.

Where concerns are flagged, we engage with the board and management of the affected PLCs, or intermediaries such as their investment advisors or auditors, to discuss corrective or remedial actions. When material non-compliances are detected, the matter will be referred to our investigation unit.

Engagement is also an important platform for us to share our expectations with the board and management of Listed Issuers. Our approach is intended to facilitate and assist PLCs in complying with the LR and to promote best corporate practices as well as to ensure greater transparency.

In addition, we also undertake thematic studies to detect emerging trends and to consider appropriate regulatory actions to address the issues or trends on an industry-wide basis. This includes issuance of directives or proposing changes to the regulatory framework.

The framework to monitor the financial condition and level of operations of PLCs is also in place, whereby we engage with PLCs and request them to take appropriate steps to address their financia condition and to ensure sustainable business practices.

One of the key obligations of a PLC is to disclose information material to investors to enable the latter to make informed investment decisions. We adopt a variety of approaches in ensuring that PLCs discharge these obligations, such as imposing mandatory requirements in the LR for disclosures, providing guidance to aid understanding of the types and extent of disclosures required, issuing queries for additional disclosures and engaging directly with the directors, senior management, auditors and investment advisors of PLCs to communicate our expectations.

In 2011 we:

• made several changes to the LR, mainly to strengthen disclosure practices in financial reporting and governance;


• issued a Corporate Disclosure Guide (CDG) explaining disclosure obligations in the LR;


• engaged with 307 listed companies and 58 advisers highlighting areas of disclosure that could be further improved;


• issued 466 announcement queries requiring PLCs to provide additional information or clarification in respect to their corporate announcements, to clarify 80 media queries, deny or confirm rumours or reports about material information not previously disclosed as well as to query 28 UMAs aimed at procuring further disclosure in instances of unusual price or volume movements not accompanied by any corporate developments;


• made referrals to our investigation and enforcement unit for suspected LR breaches in respect to disclosures; and


• embarked on advocacy programmes for disclosure requirements targeted at CEOs and CFOs of PLCs.

We continued to prioritise the enhancement of standards of Corporate Governance (CG) and sustainability practices by the Boards of PLCs in Malaysia. In 2011, therefore, we made changes to the LR to strengthen the framework for CG.

Additionally we adopted various ‘soft approaches' to influence PLCs to enhance their CG and sustainable practices. This influence was exerted either directly through engagement with directors and senior management of PLCs, or indirectly through engagement with parties that have an influence on these PLC boards such as major institutional investors, professional bodies and industry associations. As an example, we engaged with local institutional investors to encourage them to take a leadership role in governance by exercising responsible ownership and ensuring responsible boards.

Bursa Malaysia acknowledges the important role played by ‘gatekeepers', such as company secretaries, corporate advisors, internal auditors, external auditors and others, in influencing and improving the culture of governance among PLCs. We work closely with professional and industry organisations instrumental in fostering good CG practices.

Our supervisory framework for market participants was established to ensure that participants comply with the requirements of the Rules not only in form but in substance. Continuous adherence to high standards of business conduct promotes market confidence.

Our supervisory approach is a risk-based approach, in that we maintain our focus on areas and brokers that are of significant risk. When we detect concerns or suspected breach of our Rules, we address them in a meaningful way to achieve a long-term regulatory outcome. We also proactively engage with the brokers on a one-onone basis to discuss how best to rectify and correct these areas of concern or breach. We listen, guide and often recommend solutions.

We remain alert to developments that could potentially impact the business of our participants. In this respect, given the global market conditions in 2011, we enhanced our monitoring of participants' capital adequacy requirements. With respect to supervision of trading by participants,we undertook a thematic review of controls practised by the participants in their trading activities to ensure that relevant internal controls were in place and supervised their implementation. Following the review, participants made changes and improvements to these internal controls.

No financial failure of any participant and no industry-wide breaches were detected in 2011. As at 31 December 2011, the industry average for Investment Banks' Risk Weighted Capital Ratio (RWCR) was above the minimum requirement of 8%. The industry average for Non-Investment Banks' Capital Adequacy Ratio (CAR) was 11.19 times against the minimum requirement, which must be above 1.2. The industry average Adjusted Net Capital for derivatives brokers was RM14.54 million as at 31 December 2011, which is above the minimum requirement.

We carry out enforcement proceedings and actions for material breaches of our Rules, which impact market integrity or investors. For less serious breaches, we issue warnings or a caution. In addition to imposition of penalties, we also provide an avenue for remedial or corrective actions (where possible) to be undertaken by the errant parties. Through these enforcement actions, we aim to deter future breaches, educate market participants and promote a better culture of compliance.

From time to time we also review our enforcement policies and guidelines to enhance the effectiveness (and the deterrence) of our actions to build a compliance culture amongst our regulated entities.

In our assessment of our enforcement activities, we noted a declining trend since 2008 in the number of delays in regard to submission of financial statements, and deviation of the financial figures reported (i.e. profit and loss) between the audited and unaudited accounts, i.e. about 44% reduction for delay and 33% for deviation. We also noted that 99.6% of PLCs had adhered to the timeframe stated in the LR for issuance of financial statements. The above was a result of regulatory activities including enforcement aimed at encouraging compliance.

Transparency in our enforcement actions is also important as it informs the market of the range of actions that we take as well as promotes market confidence. As such, we post information on common breaches of our Rules on our website. In cases where the enforcement actions are published in the media, we set out the basis for the findings of the breach and provide a rationale on the imposition of the relevant penalties.

As at 31 December 2011, the total enforcement actions for various breaches of the LR amounted to 108, involving 26 PLCs, 57 directors and 2 advisers.

Details of the enforcement actions taken in 2011 are set out below.

Type of Action Taken#	PLCs	Directors	Total
Public Reprimand and Fine	-	59	59
Public Reprimand	27	6	33
Private Reprimand	13	3	16
Total	40	68	108
Total Fines Imposed (RM)	-	3,430,000	3,430,000

As for violations of our Business Rules, enforcement actions were instituted against participants, their dealer representatives and agents. The total number of sanctions was 162 in 2011 and included reprimands (both public and private), striking off and fines amounting to RM911,700.

Type of Action Taken#	POs/ SCPs	DRs/ RPs	ADAs	TPs/ DCPs/ FBRs/LPs	Total
Reprimand (Public/Private) and/or Fine and/or Suspension/Striking off	-	10	-	-	10
Private Reprimand and/or Fine	17	55	1	13	86
Caution	31	3	11	21	66
Total Sanctions	48	68	12	34	162
Total Fines Imposed (RM)	213,900	682,800	0	15,000	911,700

# more than one sanction may have been imposed on a director, PLC or other market participants and the total number of sanctions reported is greater than the number of persons or entities against whom we took action.

POs/SCPs – Participating Organisations/Securities Clearing Participants
DRs/RPs – Dealer's Representatives/Registered Persons (Securities)
ADAs – Authorised Depository Agents
TPs/DCPs/FBRs/LPs – Trading Participants/Derivatives Clearing Participants/ Futures Brokers' Representatives/Local Participants

The fines collected from our enforcement actions and the transfer fees collected from the transfer of DRs between POs are segregated and used to educate market participants as well as investors and to defray legal or court expenses related to enforcement actions. Below is the summary of the utilisation of fines and transfer fees in 2011:

Utilisation of Fines and Transfer Fees	RM'000
Balance as at 1 January 2011 Fines and transfer fees collected during 2011:	9,543
Fines received	3,533
Transfer fees (Transfer of Dealer Representatives Between POs)	1,588
	5,121
Fines and transfer fees utilised:
Education and training of market participants and investors	798
Legal expenses relating to enforcement actions	744
Bank charges	1
	1,543
Net Fines/transfer fees for the period	3,578
Balance as at 31 December 2011	13,121

Bursa Malaysia educates PLCs and brokers regularly on requirements of our LR and Business Rules with a view to enhance their understanding of the application of such rules and requirements.

The education programmes we undertook in 2011 were focused on addressing:

1. issues or emerging trends noted from our supervision and surveillance activities as well as from our day-to-day administration of the Listing Requirements and the Business Rules;
2. key areas for brokers and PLCs; and
3. desired practices and standards in the business of the brokers and the PLCs, in particular those relating to internal controls, governance and risk management.
   

In 2011, 3,369 participants attended the various educational programmes that we organised for directors, CEOs, CFOs, institutional investors, fund managers, brokers and their representatives.

The programmes for the dealers' representatives and futures brokers' representatives are accredited by the Securities Industry Development Corporation (SIDC) under its ‘Continuing Professional Education' (CPE) scheme. CPE points are awarded to participants for attending these programmes.

In the space of PLCs, we continued with our industry education programmes via half-day governance programmes and advocacy sessions. These have received encouraging responses from directors and industry professionals.

Our annual 'CG Week' which featured topics such as board governance, risk and control environment and conflicts of interest, provided a platform to create awareness and share information about important CG issues with directors.

To further guide directors on their duties and how to discharge them, Bursa Malaysia translated the Corporate Governance Guide: Towards Boardroom Excellence (CG Guide) into Bahasa Malaysia and Mandarin. Bursa Malaysia also organised a series of half-day Sustainability Sessions for Directors, the objective of which was to familiarise directors with good practices for sustainable business growth and discuss practical applications of sustainability across various industries.