A Record Year for Malaysia’s RM2.5 Trillion Capital Market
2012 was also a year of strong assessment outcomes. The Malaysian capital market regulatory framework emerged from this extensive assessment with a score of 92%, with ratings of “fully implemented” for 34 out of 37 principles assessed. This Achievement is the highest among countries that recently underwent the assessment.
Strong market performance; bond market hits RM1 trillion threshold
“The Malaysian capital market has performed strongly in 2012 despite challenging global market conditions. The SC’s focus in 2012 was to ensure that our market remained resilient and that it continued to play its role in capital formation and the mobilisation of savings,” said Datuk Ranjit Ajit Singh, Chairman of the Securities Commission Malaysia (SC).
The large amount of funds raised through the issuance of Corporate bonds and initial public offerings (IPOs) in 2012 sealed Malaysia’s ranking as the world’s biggest sukuk market, the fifth largest IPO destination globally and the fourth most active in Asia for corporate bond issuances.
The corporate bond and sukuk market exceeded the RM1 trillion mark for the first time and positioned Malaysia as the third largest bond market in Asia. It was also a record year for IPOs; with issuers raising a total of RM22.1 billion, increasing the equity market capitalisation by 14.1% to RM1.5 trillion while the bellwether FBM KLCI ended the year at a record high of 1,688.95 on 31 December 2012.
The fund management industry continued to play a key role in savings mobilisation, recording a significant expansion of 19.2% in assets under management (AUM), valued at RM505.1 billion. Net asset value (NAV) of the unit trust industry increased to RM294.9 billion, with NAV as a percentage of market capitalisation at 20.1%. Islamic assets under management accounted for Approximately 16% of the industry total AUM or RM79.6 billion.
The size of the Islamic capital market increased by 22.6% to RM1.4 trillion with Malaysia maintaining its position as the leading sukuk market, capturing 76.9% of global sukuk issuances and 69.2% of global sukuk outstanding. Islamic capital market also enjoyed greater internationalisation through wider participation of foreign sukuk issuers from Singapore, UAE, Bahrain and Kazakhstan.
Resilient market underscored by robust supervisory and enforcement efforts
In 2012, the SC continued to supervise intermediaries closely, through a 30% rise in on-site examinations on stockbroking and asset management companies, as well as expanded coverage to credit rating agencies. To further strengthen client asset protection, fund management companies are required to conduct independent review of its controls on an annual basis. Regarding audit quality, the Audit Oversight Board has intensified its supervisory efforts through a risk-based approach by completing inspections of 19 audit firms involving 40 individual auditors.
A wide range of significant enforcement actions were taken in 2012, along with continuous investigation efforts to curb misconduct, market abuse, and insider trading. The SC filed a total of seven criminal charges for insider trading while a company director was convicted on four charges for furnishing false information relating to a company’s unaudited financial results. In addition, eight administrative sanctions were imposed against licensed intermediaries for misconduct and improper business practices while an investment bank was reprimanded for failure to carry out proper due diligence in a corporate exercise.
In order to encourage a culture of ethics and good governance, the SC introduced the Malaysian Code on Corporate Governance 2012 focusing on enhancing board effectiveness and independence of directors.
Regulatory reform to promote capital market inclusiveness; maintain strong investor protection
Extensive amendments to the Capital Markets and Services Act (CMSA) paved the way for the establishment of a legal framework to expand retirement savings options for Malaysians. The Private Pension Administrator (PPA) was established to facilitate an efficient process for contributions and record keeping. Eight PRS providers were approved in July 2012 and as at February 2013, the total NAV stood at RM 72 million with close to 24,000 contributors registered with PPA.
Amendments to the CMSA also introduced a framework for the introduction of business trust. This new framework will provide an opportunity for investors to participate in the yields generated by the assets bundled in the trust structure when they purchase the units in the business trust listed on the exchange. It also widens fund raising options for issuers and strengthens Malaysia’s appeal as a regional listing destination.
The introduction of retail bonds provides an opportunity for retail investors to access and participate in the bond and sukuk markets. The framework allows issuers to reach out to a bigger pool of potential investors.
The initiative in broadening market access for retail investors was complemented with an enhanced investor protection framework. The Guidelines on Sales Practices of Unlisted Capital Market Products was issued to ensure that investors are treated fairly and disclosures are made simple and clear. The guidelines also mandates suitability assessments to be conducted to ensure that the product sold to investors matched their risk profiles.
The Capital Market Compensation Fund was established in 2012 to further complement improvements in market infrastructure by providing another independent avenue for investor redress.
Global assessment affirms high standards of capital market regulation
In 2012, Malaysia undertook the Financial Sector Assessment Programme (FSAP), a comprehensive assessment of all aspects of a country’s financial system by the International Monetary Fund and the World Bank. The assessment evaluates the comprehensiveness and quality of the Malaysian capital market’s regulatory and supervisory framework relative to IOSCO’s Objectives and Principles for Securities Regulation, the internationally-accepted set of standards for capital market regulators.
“The independent assessments acknowledge the strong regulatory regime in Malaysia, which has validated the SC’s approach to regulation that is appropriately benchmarked to global standards,” said Datuk Ranjit.
“It is imperative for us to swiftly capitalise on opportunities to ensure that the Malaysian capital market continues to be positioned competitively with market structures and practices which promote vibrancy and innovation,” he said.