Malaysian Capital Market Chapter 2 PDF

CHAPTER 2 THE MALAYSIAN CAPITAL MARKET 2.1. Requlators. 2.2. Bursa Malaysia. 2.3. Security Commission. 2.3.1. Security Commission Syariah Advisory Counsil. 2.3.2. Syariah Criteria for Listed Securities. Introduction The main reason of rapid growth in ICM in Malaysia is the continual support...

CHAPTER 2 THE MALAYSIAN CAPITAL MARKET 2.1. Requlators. 2.2. Bursa Malaysia. 2.3. Security Commission. 2.3.1. Security Commission Syariah Advisory Counsil. 2.3.2. Syariah Criteria for Listed Securities. Introduction The main reason of rapid growth in ICM in Malaysia is the continual support of Government through Securities Commissions, Bank Negara Malaysia, and Bursa Malaysia. These institutions play an important role by promoting the ICM as well as providing the needed infrastructure to facilitate financial players in the field Regulators Central Bank of Malaysia Act (CBA 2009) empowers the Central Bank to license and regulate institutions comprising of banks, investments, banks and money brokers, which constitutes the majority of market participants in the domestic bond marketing. Bank Negara Malaysia (BNM) has pushed forward several legislation to promote Islamic banking and finance in Malaysia as example: 1. Islamic Financial Service Act 2013 (IFSA 2013) 2. Offshore Companies Act 1990 3. Labuan Offshore Securities Industry Act 1998 Regulatory authorities The Securities Commission of Malaysia (SC) is the main regulator in respect of securities laws in Malaysia. Bursa Malaysia Securities Berhad (Bursa Securities) is the approved stock exchange in Malaysia and regulates listed companies and other stakeholders. BURSA MALAYSIA ·Bursa Malaysia is an exchange holding company approved under Section 15 of the Capital Market and Services Act 2007. ·The main activities include treasury management and the provision of management and administrative services to its subsidiaries. Bursa Malaysia also operates a fully-integrated exchange. It offers a complete range of exchange-related services including trading, clearing, settlement and depository services. ·Bursa Malaysia as Malaysian’s Stock Exchange provides companies with selection to access capital, and gives opportunities for investors to own shares in listed companies and receive potential gains from the company financial performance. Roles and responsibilities of Bursa Malaysia To become platform for trading Islamic securities - Played significant role by offering competitive and innovative products with a sophisticated market structure. Roles and responsibilities of Bursa Malaysia To explore the potential growth - Initiative to explore and promote potential growth of the ICM. As example to develop an infrastructure which enables the CPO to be used as underlying instrument for Islamic banking transaction. Roles and responsibilities of Bursa Malaysia To produce more Islamic funds which are Shariah compliant to meet the customers’ need - To meet demand from local and foreign investors who seek to invest in Shariah compliant stock. The Shariah Index is a weighted average index with components containing the securities from the Main Board which have been approved by SAC. Roles and responsibilities of Bursa Malaysia To perform regulatory and risk management duties - Voluntary guideline set up by Bursa Malaysia to carry out stock broking services accordance with Shariah requirement. Bursa Malaysia introduces a strong risk management process in order to manage or settlement risk.. Roles and responsibilities of Bursa Malaysia To develop and operate infrastructure for Malaysia Capital Market - Develop Financial Market Trading Platform (FTMP) presented by Bursa Malaysia. Functions of FTMP comprises order matching, trade negotiation, trades reporting, and market surveillance. SECURITIES COMMISIONS (SC) ·The Securities Commissions (SC) was officially set up on 1st March 1993 by virtue of the Securities Commissions Act 1993. ·It is self-funding statutory body with investigate and enforcement powers. ·It reports to the Ministry of Finance and its accounts are tabled in Parliament annually.  Roles of Securities Commissions (SC) Regulatory roles Rules and regulation issued by the SC I. Issuance of securities in ringgit or foreign currencies II. Offering of Islamic based securities III. Fines and penalties Roles of Securities Commissions (SC) Development roles - Securities Industry Development Centre (SIDC) was established as part of SC’s statutory mandate to promote research and training in the development of the securities and futures market. Roles of Securities Commissions (SC) Role as planner - Initiated various measures with different institutions and market players to orchestrate multipartite collaboration to actualize the Capital Market Master Plan  Roles of Securities Commissions (SC) Building the foundation of ICM - ICM initiative have always been an integral part of the SC’s agenda for overall capital market development.  Roles of Securities Commissions (SC) Enhancing corporate governance - Corporate governance is identified as a priority area critical to the attainment of the Malaysian capital market’s aspiration to become transparent, accountable, and well performing corporate body. SHARIAH ADVISORY COUNCIL (SAC) OF SECURITIES COMMISION (SC) I V ·The SAC of SC was established on 16 May 1996 and was endorsed by the Minister of Finance and given the mandate to ensure that the ICM complies with Shariah principles. ·It performs a twice yearly review on Shariah compliant securities and issues the updated list on the last Friday of May and November every year. L Responsible of SAC of SC ·To advise the Commission on all matters related to the comprehensive development of the Islamic capital market and to function as a reference centre for all Islamic capital market issues. ·Responsible for promoting harmonization and convergence of Shariah opinions in relation to ICM transactions. ·To standardize Shariah rullings. ·Ensuring that ICM products and services undergo through research and deliberations to ensure their permissibility from the Shariah perspective. Approach SAC of SC ·Study the validity of conventional instruments from the Shariah point of view, focusing on the transaction structure, mechanism and use of instruments to ensure their compliance with Shariah principles. ·Formulate and develop new financial instruments based on the Shariah principles. SYARIAH CRITERIA FOR LISTED SECURITIES ·The SAC of SC will closely examine the companies with mixed activities between Shariah compliant and non compliant. Criteria that considers are: ·The public perception or image of the company must be good. ·The core activities of the company are important and considered maslahah (benefit in general) to the Muslim and the country, non permissible activities is very small and involves umum balwa (ommon plight and difficult to avoid), uruf (custom) and the rights of the non muslims community which are accepted in Islam. Benchmark 5 percent benchmark (5%) ·Used to access the level of mixed contributions from the activities that are clearly prohibited ·Example: riba (interest based companies like conventional bank), gambling, trading in liquor and pork. 10 percent benchmark (10%) ·Used to assess the level of mixed contributions from the activities that involve the element of umum balwa which is prohibited element affecting most people and difficult to avoid. ·Example: contribution is the interest income from conventional current accounts or fixed deposits in conventional banks and tobacco related activities. 20 percent benchmark (20%) ·Used to assess the level of contribution from mixed rental payment from shariah non-compliant activities. ·Example: rental payment from the premises that involved in gambling business or sale of liquor. 25 percent benchmark (25%) ·Used to assess the level of mixed contributions from the activities that are generally permissible according to Shariah and have an element of maslahah to the public that may effect Shariah status of these activities. ·Example: hotels and resort operations, share trading, stockbroking. Thank you! SOURCES: “Binary Number Facts for Kids.” Binary Number Facts for Kids, https://kids.kiddle.co/Binary_number. “Numeral System.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., https://www.britannica.com/science/numeral-system.