REGULATION

REGULATORY STATEMENT

As the operator of an integrated exchange that includes securities and derivatives trading, clearing and settlement and depository services, Bursa Malaysia places significant emphasis on ensuring our markets are fair, orderly and transparent. We discharge our regulatory role in a manner that is effective, balanced and independent, guided by a comprehensive five-pronged approach encompassing development, education, engagement, supervision and enforcement.

We discharge our duties through effective oversight and supervision of trading activities in our markets and the conduct of our PLCs and brokers. We continuously develop and refine our rules to ensure comprehensiveness and effectiveness of our regulatory approach. We also conduct various education programmes for market participants to enhance their understanding of our regulatory roles and functions.

Continuous Development of our Regulatory Framework

One of our focus areas in 2012 was to refine existing rules to cater for new products or services and enhancements to existing products and services. We also updated our Listing Requirements (LR) to enhance the corporate governance standards of listed issuers, pursuant to the Corporate Governance Blueprint 2011 and Malaysian Code on Corporate Governance 2012 (MCCG 2012). We kept our rules current by ensuring that consequential changes were made in line with changes to the laws and guidelines issued by the SC.

Conducive Capital Raising Framework

The number of listed companies that undertook secondary fundraising exercises through private placements and rights issues increased from 125 in 2011 to 133, with total funds raised at RM8.79 billion, as compared to RM8.29 billion as at end of 2011. In this regard, we are mindful of our responsibility to continue enhancing our efficiency in servicing PLCs on their secondary fundraising applications while discharging our regulatory role of safeguarding the interests of the investing community by monitoring listed companies' compliance with the prescribed rules and procedures. We also ensured that our turnaround time in assessing fundraising applications remained timely.

Orderly and Fair Trading in the Market

We monitored both trading and corporate activities of our PLCs to ensure orderly and fair dealings in our markets.

We also took appropriate regulatory responses for concerns noted, which included engaging with brokers and PLCs, issuing alerts on any unusual market activity (UMA) and referring to the relevant authorities any suspected breach of the law.

These resulted in, among others, additional disclosures made to the market by PLCs, effective management of trading activities that are of concern and corrective actions by brokers and PLCs to address concerns and weaknesses noted. Our early detection and swift regulatory responses averted the need to impose other types of trading suspension or restriction which would have impacted investment values.

We improved our surveillance capabilities through the launch of the New Surveillance System (NSS) on 31 December 2012. This aims to provide a robust monitoring mechanism for market surveillance, high degree of automation, and high performance and capacity in handling large amounts of data for analysis.

Continuous and timely Corporate Disclosure

Part of our PLCs' obligations is to provide investors access to information for informed decision making. In 2012, we observed high adherence by our PLCs to providing financial information on a timely basis. We monitored disclosures made by PLCs in circulars and announcements to ensure their timeliness and adequacy. As at 31 December 2012, 99.63% of our PLCs had issued their financial statements within the timeframe required under the rules. Also, following the amendments to the LR and the Corporate Disclosure Guide issued in September 2011, we have seen significant improvements in disclosures made in quarterly and annual reports relating to the analysis of performance, cash flow, five-year financial highlights and management discussions and analysis (MD&As).

Maintaining high level of Corporate Governance (CG) Standards and Sustainability Practices

We continue to enhance the standards of corporate governance (CG) and sustainability practices by the Boards of PLCs in Malaysia.

We saw positive results when CG Watch 2012 Report moved up Malaysia's ranking for CG practices from sixth position (in 2010) to fourth position (out of 11 Asian nations). This improvement can be attributed to the collective efforts of the industry and regulators as well as increased awareness among our PLCs of the importance of good CG practices. The above report was issued by Asian Corporate Governance Association (ACGA) in collaboration with CLSA Asia Pacific Markets (CLSA).

In 2012, we made further updates to the LR in line with the newly issued Malaysian Code on Corporate Governance (MCCG) and recommendations of the Corporate Governance Blueprint 2011 to enhance the CG practices of our PLCs. Our Corporate Governance Guide – Towards Boardroom Excellence – is being revised to reflect the new principles and recommendations of MCCG 2012.

High Standards of Business Conduct by Brokers

Our brokers play an important role in providing intermediation services to our investors, hence we require them to have in place good standards of business governance and conduct. This ensures continued integrity of the market and investor protection. We also focused our supervision in 2012 on front office trading controls which resulted in brokers enhancing their internal controls.

In 2012, we continued to ensure our brokers' compliance with our rules and monitored their financial health via on-site audits and reviews of their financial information. We found no financial failure of any participant and no industry-wide breach in 2012.

As at 31 December 2012, 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 11.6 times against the minimum requirement of 1.2. The industry average Adjusted Net Capital for derivatives brokers was RM15.2 million, above the minimum requirement.

Education and Awareness

We conduct educational programmes on a regular basis for market participants to create greater understanding of our rules and requirements.

In 2012, we also conducted advocacy programmes for CEOs and CFOs of PLCs to enhance their understanding of the underlying principles in the rules and standard of expected disclosure. A total of 1,026 participants from 598 PLCs attended these programmes.

Further, to ensure that company secretaries of PLCs play a more effective role in advising their Boards of Directors and senior management on best practices in standards of disclosure, we collaborated with the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA) to conduct 10 training sessions entitled Corporate Disclosure Guide for PLC Company Secretaries. The programmes were attended by 517 participants.

To raise awareness and share CG practices expected of PLCs, we engaged with directors, senior management and other gate keepers of PLCs in focus group meetings, advocacy programmes and talks held in collaboration with industry associations. We organised 11 events which were attended by a total of 1,526 participants.

As we do with PLCs, we also carry out educational programmes for our brokers. In 2012, we conducted eight educational programmes for our brokers' trading representatives and collaborated with Malaysian Investment Banking Association (MIBA) on a conference for compliance officers. A total of 889 trading representatives and 142 compliance officers attended these programmes.

Upholding Market Integrity Through Enforcement

We take enforcement action for breaches of our rules to serve as a deterrent and promote a culture of compliance and standards of business conduct and CG practices.

In 2012, we took 117 enforcement actions against 25 PLCs and 50 directors of 10 PLCs for various breaches of our LR and 146 enforcement actions against 27 broking houses, five authorised depository agents, three clearing participants and 32 registered persons for various breaches of the Business Rules.

The most common enforcement action were in respect of disclosure, such as delays in announcing payment defaults, in the submission of financial statements, and in making material/requisite announcements; and breaches in relation to making inaccurate or incomplete announcements.

Utilisation of Fines and Transfer Fees

Fines collected from our enforcement action and transfer fees collected from the transfer of dealer representatives (DRs) between Participating Organisations (POs) are used to educate market participants as well as investors and to defray legal or court expenses related to enforcement action. Below is a summary of the utilisation of fines and transfer fees in 2012: