Topic 2 : Regulation of the Securities Industry
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Securities industry law
The legislation which affects the securities industry :
• Securities Commission Act 1993 (SCA)
• Securities Industry Act 1983 (SIA)
• Securities Industry (Central Depositories) Act 1991
• Futures Industry Act 1993
• Companies Act 1965 (CA)
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Why have specific laws
The first objective of securities regulation is to establish a capital market in
which investors can have confidence.
The functions of regulation are to
• define key features of the financial system and the role of the securities
market institutions
• steer market participants towards the adoption of best practices
• create disincentives against behaviour that would be detrimental to the
market.
The objective pursued by regulators are therefore, market integrity, fairness and
efficiency.
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Regulation of stock market
The recognition of the need for a securities regulator to ensure investor protection
and market integrity is embedded in the SCA, under which SC is established.
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Merit-based regulation
The framework currently applied by the SC includes both merit-based and
disclosure-based regulation.
Section 32(4) of the SCA mandates that all proposals involving issues or offers of
securities be subject to the SC’s prior approval.
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Disclosure-based regulation
The role of the regulator under disclosure-based regulation would focus more on
the protection of potential investors by ensuring that the information disclosed is
sufficient, true and timely.
In this capacity, the regulator has an obligation to insist that every issue of
offering of securities is accompanied by full disclosure of all material information
required to form an investment decision.
Disclosure-based regulation puts the burden of telling the whole truth on the
seller. Any information found to be false or misleading and any material
omissions of information would subject the promoters and their advisers to stiff
penalties.
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Regulatory bodies Securities Commission
(SC)
The SC provides for the regulation of, and advises the Minister of Finance on all
matters relating to the securities and futures industries.
The SC has 9 member/commissioners, appointed by the Minister of Finance:
• 1 Chairman, who shall be the Executive Chairman
• 4 members representing the Government
• 4 other persons
SC’s mission statement is ‘to promote and maintain fair, efficient, secure and
transparent securities and futures market and to facilitate the orderly development
of an innovative and competitive capital market’.
The functions of the SC are listed under s.15 (Subs Act A926) of the SCA.
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Bursa Malaysia Bursa Malaysia is a self-regulatory organization with its own M & A as well as a
set of Rules of Bursa Securities which govern the conduct of the Participating
Organizations in securities dealings. It is also responsible for the surveillance of
the marketplace, and for the enforcement of its Listing Requirements which spell
out the criteria for listing, disclosure requirements and standards to be maintained
by public listed companies.
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Bursa
Depository
The Bursa Depository was approved by the Minister of Finance to run the central
depository. It operates the Central Depository System (CDS), which is the Bursa
Malaysia’s scripless electronic settlement system.
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Bursa Clearing Bursa Clearing was set up as a centralized clearing house to do away with
clearing and settlement of scrip on an inter-broker basis.
Its functions include :
• to provide clearing members with facilities for clearing contracts between
them i .e. delivering and receiving stocks and securities from each other, and
receiving or paying any amounts payable to or by such clearing members.
• to provide clearing members with facilities for clearing contracts between
them and their clients i.e. delivering and receiving stocks and securities from
their clients, and receiving or paying any amounts payable to or by such
clearing members.
• to provide and maintain facilities for the custody of scrips on behalf of
clearing members in particular, and other organizations or individuals in
general.
2-2Topic 2 : Regulation of the Securities Industry (continued)
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Foreign Investment Committee
(FIC)
The FIC was formed to implement the government’s guidelines on regulation of
acquisition of assets or interest, mergers or takeovers of companies and
businesses, and is responsible for major issues on foreign investment.
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Regulatory bodies Companies Commission of Malaysia
(CCM)
The CCM (previously known as Registrar of Companies) is appointed by the
Minister for Domestic Trade and Consumer Affairs, and has the responsibility
for administering the CA.
The powers of CA include
• the power to call for information, conduct inspections, investigations and
call for people to be examined
• enforce the filing or lodging with the CCM of accounts or other documents
• register companies by registering the M & A, and issue certificates of
incorporation
• to take proceedings for any offence against the CA
• to receive the fees as set out in the CA
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Ministry of Finance (MOF)
The objective of MOF is to ensure that the financial and budgetary policies of the
government achieve a steady economic growth in line with the National
Development Policy.
MOF is responsible for the formulation, planning and implementation of fiscal
and budgetary policies to promote sustainable economic growth, improve national
economic resilience and to ensure a more equitable sharing of national wealth.
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Ministry of Domestic Trade and Consumer Affairs
The relevant aspect of this Ministry in relation to the capital market is regarding
its authority in the registration and supervision of companies and the registration
and supervision of trust companies. This task is the objective of CCM which
reports to the Minister of Domestic Trade and Consumer Affairs.
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