Investment Management and Corporate Finance PDF

www.sidc.com.my MODULE Investment Management 12 and Corporate Finance S E C U R I T I E S C O M M I S S I O N L I C E N S I N G E X A M I N AT I O N S T U D Y...

www.sidc.com.my MODULE Investment Management 12 and Corporate Finance S E C U R I T I E S C O M M I S S I O N L I C E N S I N G E X A M I N AT I O N S T U D Y G U I D E [This page is intentionally left blank] SCLE Study Guide Module 12 Investment Management and Corporate Finance www.sidc.com.my SECURITIES INDUSTRY DEVELOPMENT CORPORATION Securities Industry Development Corporation (765264K) 3 Persiaran Bukit Kiara, Bukit Kiara 50490 Kuala Lumpur, Malaysia Tel: 03-6204 8667 / 8665 Email: [email protected] URL: www.sidc.com.my Copyright © Securities Industry Development Corporation 2022 Copyright strictly reserved. No part of this examination study guide may be eproduced, copied or transmitted in any form or by any means (e.g. graphic, electronic or mechanical, including photocopying, recording, taping, or information retrieval system) without the written permission of the copyright holder: the Securities Industry Development Corporation. The Securities Industry Development Corporation has made every effort to contact copyright holders and requested permission for all copyright material. However, despite its best efforts, there may be instances where it has been unable to trace or contact copyright holders before the printing deadline. If notified, the Securities Industry Development Corporation will be most pleased to acknowledge the use of copyrighted material. First Edition 2022 Perpustakaan Negara Malaysia Cataloguing-in-Publication Data SECURITIES COMMISSION LICENSING EXAMINATION STUDY GUIDE. MODULE 12, Investment Management and Corporate Finance / Securities Industry Development Corporation. – First Edition, 2022. Mode of access: Internet eISBN 978-629-96784-3-4 1. Licenses--Examinations. 2. Investments. 3. Corporations--Finance. 4. Electronic books. I. Perbadanan Pembangunan Industri Sekuriti. 352.84 This examination study guide is issued by the Securities Industry Development Corporation, Malaysia, on the understanding that: 1. the Securities Industry Development Corporation, Malaysia and individual contributors are not responsible for the results of any action taken on the basis of information in this examination study guide or any errors or omission; 2. the Securities Industry Development Corporation, Malaysia and individual contributors expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted by a person in reliance, whether whole or partial, upon the whole or any part of the contents of this examination study guide; and 3. the Securities Industry Development Corporation, Malaysia and individual contributors do not purport to provide legal or other expert advice in this examination study guide and if any legal or other expert advice is required, the services of a competent professional person should be sought.  Contributors The Securities Industry development Corporation would like to acknowledge the following contributors: Deloitte & Touche Corporate Advisory Services Sdn. Bhd. Bursa Malaysia Berhad Association of Stockbroking Companies Malaysia (ASCM) AMMB Asset Management Sdn. Bhd. Kenanga Deutche Futures Sdn. Bhd. Rashid & Lee Mr. Terence Wong  Introduction This module aims to provide readers, in particular investment advisers, with an overview of the principles of corporate finance and investment management. The diagram below shows the key topics in this module and how they have been structured. Figure 1: General Overview Regulatory Investment environment environment Economics  Using the Examination Study Guide to Prepare for your Examination Self-study guide The Examination Study Guide has been designed to help you study independently: you successfully pass the Module 12 examination, you should study the module thoroughly and complete all the Activities presented. You are also advised to plan your study carefully – start early and provide ample time for revision in the period leading up to the examination to make sure that you have a good grasp of all the required concepts and their application(s). This study guide was revised in 2011, all rules and regulations are correct as of the date of release. You are expected to keep yourselves updated, as ongoing examinations will reflect current rules & regulations. Outline of headings An outline of each topic is given below. Introduction This provides an overview of the subject matter covered in the topic Objectives Objectives define what you have to achieve after a complete study of the topic. You should keep these objectives in mind as you go through the topics in the module. Double check whether you have achieved the objectives after you have studied the topic. Content The content of the module is presented in a way that would best guide you from the initial stages of gaining background knowledge and information, and onwards to discussing and applying concepts introduced. The sequencing of the topics and contents of topics is, as far as possible, set such so that the concepts introduced are gradually inter-linked and the depth of the content increases as you progress further into the module. Activities The activities serve to complement by exercise the concepts presented in the topic. Examples The examples serve to clarify and reinforce the understanding and application of concepts or methods introduced. In Summary The summary/conclusion brings together the main points or emphasis covered in the topic. Feedback We would appreciate your feedback on this Examination Study Guide. A feedback form is included at the end of the module. Please provide us your honest and constructive comments once you have completed this module so that we can improve for future participants. Your comments will be kept confidential.  Module Outline Topic 1: Overview of the Investment Environment Topic 2: Fundamentals of Economics Topic 3: Strategic Management Topic 4: Financial Statement Analysis and Performance Measurement Topic 5: Risks and Returns Topic 6: Portfolio Theory Topic 7: Portfolio Management Topic 8: Financing Decisions Topic 9: Debt Financing Topic 10: Equity Financing Topic 11: Dividend Policy Topic 12: Valuation Topic 13: Options Topic 14: Futures Topic 15: Swaps and Interest Rate Options Topic 16: Corporate Restructuring and Mergers and Acquisitions Topic 17: Structured Products Module 12 Investment Management and Corporate Finance www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my Topic 1: Overview of the Investment Environment Contents 1.1 Introduction 1.2 Development of the Capital Market and its Technology 1.3 The Malaysian Markets 1.4 Growth of Capital Market Products and Services in Malaysia 1.5 Regulatory Framework of the Malaysian Capital Market 1.6 Conclusion In Summary Self-Assessment Questions & Answers  1.1 Introduction In the past decade, the gross domestic product of Asia’s emerging economies has been growing at an annual rate of 7.5%. It has grown considerably faster than thetraditional “industrial” economies and is reflected by the sizeable net capital and rapid financial market development. As for Malaysia, our growth has been reflected in the market capitalisation for Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange), which increased from RM444 billion in 2000 to a peak of RM1,106 billion in 2007 before the global financial meltdown in 2008. This section discusses the investment environment of the Malaysian capital market in context of the development of: 1 the capital market and related technology 2 the secondary markets 3 the expansion of the securities laws and regulations 4 the capital market outlook for Malaysia Learning Objectives At the end of this topic, you should be able to: provide an overview of issues relating to the investment 1 environment in Malaysia Module 12 Investment Management and Corporate Finance 1-1 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment 1.2 Development of the Capital Market and its Technology The capital inflow into Malaysia for the last two decades has been favourable due to sustained economic growth and the strong commitment of the government. The Malaysian capital market, which represents a vital part of the financial market infrastructure, has witnessed significant changes and development over the last two decades. The make-up of the capital market can generally be described in the following manner: The markets that are collectively and generally referred to as the capital market consists of: 1 the equity market the financial derivatives the private and public market debt securities market the Islamic capital market The activities of the capital market comprise all kinds of financial transactions, in particular, securities trading and broking, mergers and acquisitions exercises, financial risk management, underwriting, 2 restructuring, as well as other corporate financial activities. Active participants in the Malaysian capital market usually fall under one of the following categories: a) Foreign and local investors institutional investors e.g. Employees Provident Fund (EPF) retail investors b) Foreign and local issuers c) Market intermediaries 3 stock and futures brokers unit trust companies investment banks discount houses investment advisers fund managers d) Market institutions exchanges clearing and depository institutions issuing houses The regulatory framework comprises several authorities regulating different aspects of the market, with the Securities Commission Malaysia (SC) being the lead regulator of the capital market. The SC was established under the Securities Commission Act 1993 and is responsible for monitoring the activities of market institutions and 4 regulating all persons licensed under the Capital Markets and Services Act 2007. In addition, the SC is also responsible for the development of the Malaysian capital market. Some of the other authorities include Bank Negara Malaysia (BNM) and market institutions such as Bursa Malaysia. Module 12 Investment Management and Corporate Finance 1-2 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Market institutions Market institutions in the Malaysian capital market essentially comprise the exchanges, clearing houses, issuing houses and the central depository. Exchanges The termination of currency interchangeability between Malaysia and Singapore in May 1973 led to Public trading of shares Two trading rooms, one the separation of the Stock first started with the in Singapore and the Exchange of Malaysia and Singapore setting up of the Malaysian other in Malaysia, were into the KLSE and the Stock Stock Exchange (MSE) set up. Exchange of Singapore (SES). A strong link existed in that Malaysian incorporated companies were listed and traded through the SES and vice versa for Singapore incorporated companies. 1960 1961 Restructuring of MSE to become the Kuala Lumpur Stock Exchange 1973 (KLSE), a new company limited by guarantee. Delisting of Singapore incorporated companies from KLSE, and of 1976 Malaysian incorporated companies from the SES (1 January 1990). 1990 The KLSE, the first formal market institution to serve the capital market, played a pivotal role in the establishment and development of the market that has progressed over the years. Since its inception in 1973 and the subsequent launch of the Second Board in 1988, efforts have been made to enhance the function and performance of the exchange, including the establishment of a clearing house and a trading system. Module 12 Investment Management and Corporate Finance 1-3 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment The second stock exchange, the KLSE CI options contract in December Malaysian Exchange of Securities 2000. Another derivatives exchange is Dealing and Automated Quotation Bhd the Commodity and Monetary Exchange (MESDAQ), was launched in 1997 and of Malaysia (COMMEX), which was commenced trading in 1999. It was formed in 1998 as a result of the merger mandated to enhance Malaysia’s capital between Malaysia Monetary Exchange market environment by creating a new (MME) and the Kuala Lumpur platform for companies seeking Commodity Exchange (KLCE). Contracts investors and vice versa. Its aim was traded on COMMEX were the Crude Palm specifically to help raise capital for high Oil (CPO) Futures and the three-month growth technology-based companies. In Kuala Lumpur Interbank Offer Rate March 2002, as part of the consolidation (KLIBOR) futures. On 11 June 2001, both process of the exchanges, MESDAQ was KLOFFE and COMMEX merged to form merged with the KLSE, and known as the the Malaysia Derivatives Exchange MESDAQ Market. (MDEX), which operated as the only derivatives exchange in Malaysia. MDEX On 14 April 2004, KLSE changed the was later renamed Bursa Malaysia name to Bursa Malaysia Berhad, Derivatives Berhad (Bursa Derivatives) following the demutualisation exercise following the demutualisation exercise in and was listed on the Main Board of 2004. Bursa Malaysia Securities Berhad on 18 March 2005. On 3 August 2009, following the introduction of a new framework for listings and equity fund-raising, a merger of the Main and Second Boards formed the current Main Market. The MESDAQ Market was also revamped as a result of the new framework and is now known as the ACE Market. In addition, the Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) was set up in 1995. It commenced operations in the same year. KLOFFE introduced its first product, namely the KLSE Composite Index (KLCI) futures contract in 1995, followed by the Module 12 Investment Management and Corporate Finance 1-4 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Clearing houses Issuing houses Bursa Malaysia Securities Clearing Sdn There are two issuing houses in Bhd (Bursa Clearing), formerly known Malaysia, namely the Malaysian Issuing as the Securities Clearing Automated House Sdn Bhd (MIH) and Equiniti Network Services Sdn Bhd (SCANS), Services Sdn Bhd (Equiniti). was initially formed to facilitate the clearing system and to elevate trading The issuing house is responsible for activities to a more efficient level. the issue of new securities to be listed Bursa Clearing is used for real-time on Bursa Malaysia. The involvement of reporting on transactions and is the the issuing house commences from clearing house for the securities the application of new securities up to exchange. the allotment of the said securities. In general, an issuing house acts as an Meanwhile, Bursa Malaysia Derivatives agent of the issuer (the company) and Clearing Bhd, formerly known as the the liaison between the public, the Malaysian Derivatives Clearing House issuer and the authorities. The (MDCH), acts as the clearing house for functions of an issuing house include, contracts traded on markets operated inter alia, the management and by Bursa Malaysia Derivatives. The administration of share applications clearing house is vital in the overall forms, the organisation of the balloting management of systemic risk in the of the shares (for an IPO) as well as the market. Regulated under the Rules of allotment of the shares and issuance Bursa Malaysia Derivatives Clearing of the Statement of Allotment and final Bhd, the clearing house has shareholder allotment list to be given established rules to govern its to the Bursa Malaysia Depository Sdn contractual relationship with the Bhd. The issuing house also acts as a member companies of Bursa Malaysia stakeholder responsible for holding all Derivatives. payments for the application of securities in a trust account, prior to the crediting of the said payments upon allotment of the securities. Module 12 Investment Management and Corporate Finance 1-5 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Central depository In 1990, the Bursa Malaysia Depository practice of holding and moving Sdn Bhd (Bursa Depository), formerly physical scrip of quoted securities with known as Malaysian Central Depository a safe and dependable computerised Sdn Bhd (MCD), was established to book entry system (i.e. scripless provide central clearing and settlement trading). of securities. Bursa Depository operates and maintains a Central Since the capital market acts as a Depository System (CDS) in respect of catalyst to mobilise both short- and shares, loan stocks, debentures or long-term capital to finance other securities of corporations investments that are imperative for the whereby all investors, individual or economic growth of the country, it is corporate, are required to open CDS important that the development of the accounts with Authorised Depository capital market and its continued Agent of Bursa Malaysia to allow them growth are based on the collective to trade in prescribed securities. The efforts of the SC, other government CDS was aimed at replacing the authorities and the industry. 1.3 The Malaysian Markets The success of primary markets depends on the availability of efficient secondary markets. A secondary market is a market that trades in assets that have been issued in the primary markets. For a secondary market to function properly, efficient supporting institutional infrastructure such as market-based benchmarks, efficient clearing and settlement systems, credit rating agencies and central information systems are required. In order to be efficient, a secondary market needs to provide: a source for a liquid market a good price diversifying and goodwill for for the assets discovery transferring firms traded function investment risk The secondary market plays a major role in the capital mobilisation process. In Malaysia, we have three major secondary markets. These are secondary markets for bonds, equities and derivatives instruments. Module 12 Investment Management and Corporate Finance 1-6 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment 1.3.1 Secondary bond market The two main sectors of the Malaysian bond market are the government and private sectors. Government bonds Government bonds were initially issued to meet the investment needs of the saving sector e.g. the Employees Provident Fund and to partially fund the budget deficit of the Federal Government. Its issue was then expanded mainly to finance Malaysian Treasury Bills public sector development expenditure. Malaysian Treasury Bills (MTBs) are short- term debt securities sold by BNM on behalf of the Federal Treasury to raise short-term Some main types of money market funds for government working capital and instruments traded as government are issued on a discount basis through bonds in Malaysia are: tenders submitted by principal dealers. Malaysian Government Securities Bank Negara Monetary Notes Malaysian Government Securities (MGS) Bank Negara Monetary Notes (BNMN) are have traditionally dominated the Malaysian issued to replace the Bank Negara Bills bond market. They are long-term debt (BNBs) issued earlier on, for the purpose securities issued for the purpose of of managing liquidity in the conventional financing developmental expenditure. MGS financial market. The maturity of these are fixed rate coupon bearing bonds with a issuances has been lengthened from 1 maturity of 3 to 20 years. In December year to 3 years. New BNMN may be issued 2006, Callable MGS was also introduced, either on a discounted or on a coupon- providing the government with the option of bearing basis, depending on the investors' redeeming the issue at par by giving demand. advance notice to the bond holders. Both MGS and Callable MGS are issued via competitive auction by BNM, with the Government Investment Issues lowest yields being offered as the successful bidders and the weighted Bank Negara Monetary Notes (BNMN) are average yield of successful bids as the issued to replace the Bank Negara Bills coupon rate. The secondary market for (BNBs) issued earlier on, for the purpose MGS is liquid with average daily transaction of managing liquidity in the conventional volume ranging from RM100 million to financial market. The maturity of these RM500 million. MGS are largely held by issuances has been lengthened from 1 financial institutions and the Employees year to 3 years. New BNMN may be issued Provident Fund. However, with the either on a discounted or on a coupon- increasing sophistication in the Malaysia’s bearing basis, depending on the investors' capital market, more new instruments have demand. emerged to complement MGS. Module 12 Investment Management and Corporate Finance 1-7 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Corporate bonds Corporate bonds are essentially debt For OTC trading, quotes are typically instruments issued by the private obtained directly from money brokers sector which usually carry a definite and dealers over the telephone. maturity period and a stated payment However, all trading in the OTC market of interest. The increasing role of the must be reported in the Bursa private sector as the main engine of Malaysia’s ETP and settled through economic growth and for the BNM’s Real Time Electronic Transfer of implementation of the government Funds and Securities (RENTAS), privatisation plans in the mid-1980s comprising the Interbank Funds have initiated the development of the Transfer System (IFTS, which deals with private debt securities market. large-value fund transfers) and Scripless Securities Trading System (SSTS, which The corporate bond market was allows the book-entry settlement and launched with the establishment of recording of holdings of scripless debt Cagamas Bhd (Cagamas) – Malaysia’s securities). National Mortgage Corporation – in 1986. It started with Cagamas Bursa Malaysia’s ETP was introduced in purchasing housing mortgages from March 2008 as a single electronic trade loan originators and repackaging them reporting and trading platform for the into fixed-rate bearer bonds that are domestic bond market. The system tradable on the inter-bank market, takes over the function of BNM’s Bond thereby providing liquidity to banks. Information Dissemination System Cagamas is the second largest debt (BIDS) for mandatory reporting of all issuer after the Government. secondary bond market transactions and is expected to enhance price A detailed explanation on corporate transparency and liquidity in the bonds is covered in Topic 9. secondary bond trading. The ETP also interfaces with other systems such as The Malaysian bond market consists of the FAST (Fully Automated System for listed and unlisted bonds. Unlisted Tendering) as well as information bonds are largely traded over-the- providers, such as Bloomberg and counter (OTC) while listed bonds are Reuters. traded through Bursa Malaysia’s Electronic Trading Platform (ETP). The secondary market enables potential Bonds listed on Bursa Malaysia are investors to trade securities after the also known as loan stocks. securities are issued and the availability of liquidity is extremely important for the development of the bond market. Module 12 Investment Management and Corporate Finance 1-8 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Credit rating agencies The establishment of a credit rating agency is essential for the success of the bond market and it promotes transparency and investor confidence in the market. Credit rating is an objective and impartial third party opinion on the ability and willingness of an issuer of a debt instrument to make full and timely payments of principal and interest over the life of that instrument. The first rating agency, Rating Agency Malaysia (RAM) was set up in 1990 to provide independent credit ratings to corporate debt securities and to boost the private debt securities market. Subsequently, the second rating institution, Malaysian Rating Corporation Berhad (MARC), was launched in 1996. The rating agencies undertake ratings of private debt securities, Islamic capital market instruments, asset-backed securities, corporate and financial institutions. Module 12 Investment Management and Corporate Finance 1-9 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment 1.3.2 Secondary equity market Bursa Malaysia governed by various Acts of Parliament including the Capital Markets and Services Act 2007, Securities Industry (Central Depositories Act) 1991, Securities Commission Act 1993 as well as Companies Act 1965. It is a self- regulatory organization, obligated to ensure that its participating organisation adhere to the rules of conduct for fair, ethical and efficient practices. Like all exchanges, Bursa Malaysia has listing requirements and a regulatory framework, which work to promote investors confidence and protection. The regulatory framework is reviewed and changed over time to reflect changes in the investment environment. In mid 2009, the Malaysian government announced several measures to revamp the fundraising framework with more efficient rules and broadened the ease of financing through the merger of the Main and Second Boards of the exchange as well as the re- positioning of MESDAQ as a sponsor-driven market for a wide range of companies. The new framework entailed the merging of Bursa Malaysia’s Main and Second Boards into a single board for established corporations known as Main Market. In addition, the MESDAQ Market was transformed into the ACE Market, opened to companies of all sizes and from all economic sectors. The two new markets became operational on 3 August 2009. The KLSE Composite Index (KLCI), known as FTSE Bursa Malaysia KLCI since 6 July 2009, is used as the benchmark index by investors. The FTSE Bursa Malaysia KLCI is one of the most widely-followed indices in the financial community in Malaysia as it serves to reflect the performance of the Malaysian stock market as a whole. The FTSE Bursa Malaysia KLCI is based on 30 companies listed on the Main Market of Bursa Malaysia and is calculated as follows: Current aggregate market value x 100 Base aggregate market value The FTSE Bursa Malaysia Emas Index, on the other hand, is computed based on all the companies listed on the FTSE Bursa Malaysia Top 100 Index and FTSE Bursa Malaysia Small Cap Index. The respective sectoral indices are computed based on the companies segregated into each respective sector. The bases of computation for these indices are similar to the computation of the FTSE Bursa Malaysia KLCI. Module 12 Investment Management and Corporate Finance 1 - 10 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment 1.3.3 Secondary derivatives market The derivatives market in Malaysia KLIBOR futures are financial institutions, commenced with the establishment of as it serves as a means to hedge the the Kuala Lumpur Commodity Exchange interest rate risk of ringgit denominated (KLCE) in July 1980. The initial futures fixed income instruments. contract traded on KLCE was Crude A visibility study by the International Palm Oil Futures. This contract is still Monetary Fund for BNM in 1990 traded today. The KLCE had the identified the need for some form of infrastructure and capacity to allow for financial risk management tool in the the trading of financial futures; however, face of increasing volatility in the setting up a subsidiary was necessary financial markets. This study led to a because trading in the financial futures series of regulatory infrastructure fell under different jurisdictions. reforms to introduce financial derivatives. As a result of these reforms, Therefore, on 19 August 1992, the KLCE, Malaysia’s first financial derivatives with the support of the government exchange was established – the Kuala authorities, incorporated a wholly owned Lumpur Options and Financial Futures subsidiary called the Kuala Lumpur Exchange (KLOFFE). The first contract Futures Market Sdn Bhd (KLFM), which traded was the futures on the KLCI. was later renamed the Malaysia Monetary Exchange Bhd (MME) in mid- In its active pursuit to develop and 1995. On 7 May 1996, the Minister of improve competitiveness in the market, Finance approved the establishment and KLOFFE, in December 2000, introduced operation of MME as a futures and options on the KLCI. At the same time, options exchange company and the measures were undertaken to attract three-month KLIBOR futures contract active participants of foreign and local was launched on 28 May 1996. institutions. Continual efforts were also undertaken by the exchange to create On 9 November 1998, the KLCE was public awareness on the uses and renamed the Commodity and Monetary benefits of derivatives. Exchange of Malaysia (COMMEX) in preparation for the merger with the In line with the SC’s Capital Market Malaysian Monetary Exchange. The Masterplan, KLOFFE and COMMEX merger took place on 7 December 1998. merged on 11 June 2001 to form a new COMMEX provides the platform for the derivatives exchange called the Malaysia trading of CPO futures and KLIBOR Derivatives Exchange Berhad (MDEX). In futures. Trading is done on an open April 2004, MDEX was renamed Bursa outcry system. The main participants of Malaysia Derivatives Berhad. Module 12 Investment Management and Corporate Finance 1 - 11 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment 1.4 Growth of Capital Market Products and Services in Malaysia There has been significant development of other products and services in the capital market to support and supplement the underlying equity, bond and derivatives markets. The initial products and services composition of the capital market in Malaysia has gradually been altered to add new breadth to the overall market. Hence, these ancillary instruments and services may not be completely new but rather are modified or expanded from their original features. Several key financial products and services that have evolved over the years are outlined below: Fund management Stockbroking Islamic capital industry industry market 1.4.1 Fund management industry Fund managers consist of, among The unit trust funds in Malaysia can be others, the EPF, unit trust management categorised under government- companies, asset management sponsored funds and private funds. It companies and insurance companies. has nevertheless maintained its The Malaysia’s fund management upward trend in terms of the number of industry has come a long way. Since units in circulation and unit holders. the establishment of the first unit trust The SC has revised the guidelines fund back in 1959, numerous funds governing the unit trust industry in and services have been introduced over 2008 to enable benchmarking against the years. international standards and enhancement of fund management while spurring the growth of the industry. Module 12 Investment Management and Corporate Finance 1 - 12 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment In an effort to further strengthen UBs would be allowed to undertake, in Malaysia’s position in the fund addition to the current activities of a management and unit trust industry and stockbroking company, a full range of to allow fund managers an additional capital market services such as option to establish their operation in the corporate finance activities, trading in region, in June 2009, the Malaysian derivatives, dealing in debt securities government announced that ownership and trading in new capital market in the wholesale segment of the fund products that are introduced in the management industry would be fully future by the SC or the exchange. liberalised, allowing qualified and leading fund management companies to 1.4.3 Islamic capital market establish operations in Malaysia with The Islamic finance industry in 100% ownership. In addition, the foreign Malaysia distinguishes itself as one of shareholding limits for the unit trust the proven platforms for conducting management companies would be raised Islamic finance activities across the to 70% from its previous level of 49%. globe. The vibrancy and dynamism of Malaysia's Islamic financial system is 1.4.2 Stockbroking industry reflected by its continued product Stockbroking companies typically carry innovation, a large and diverse pool of out a range of activities including trading Islamic finance talent, diversity of and broking for Bursa Malaysia-listed financial institutions from across the instruments and other securities, offering world, a wide range of innovative investmentadvice and providing Islamic financial products, a nominee/custodian services. comprehensive Islamic financial infrastructure as well as adoption of The SC aims to establish a consolidated, global regulatory, legal and Shariah well-capitalized and more efficient best practices. stockbroking industry in Malaysia, as encapsulated under the Capital Market Malaysia has also the distinction of Masterplan (CMP). Consolidation would being the world's first country to have a make the stockbroking industry better full- fledged Islamic financial system equipped to face the challenges of operating in parallel to the conventional globalisation and liberalisation. Some of banking system. It has placed strong the efforts directed at achieving this emphasis on human capital include, among other things, liberalising development in Islamic finance to foreign equity participation in domestic ensure the availability of capable and stockbroking companies in stages, adept talents. starting in 2003 and introducing a new category of full-service intermediaries known as Universal Brokers (UBs). Module 12 Investment Management and Corporate Finance 1 - 13 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Malaysia’s Islamic finance journey Islamic Banking Act The first Islamic 1960 1983 and the Takaful 1994 equity unit trust fund 2003 Act 1984 was enacted was established Pilgrims Fund was (BIMB Securities) The world's most established 1980 Full-fledged Islamic 1995 advanced Islamic stockbroking company financial markets and was established is a leader in Islamic finance system Malaysia's chronology in Islamic Today, Malaysia possesses one of the finance began in the 1960's with the world's most advanced Islamic establishment of the Pilgrims Fund. financial markets and is a leader in This was followed by various initiatives Islamic finance system where assets throughout the decades. Notably in the are estimated to be worth around US$1 1980's, Malaysia enacted the Islamic trillion globally, 5 times greater than in Banking Act 1983 and the Takaful Act 2003. 1984 respectively. This paved the way for the creation of Malaysia's first The Islamic Financial System is divided Islamic bank and first takaful company into Islamic banking, takaful and the and thereafter the development of ICM. more Islamic financial institutions and the growth of the industry as a whole. The sub-components of the ICM are Islamic equity, sukuk, Islamic funds, On the Islamic Capital Market (ICM) unit trusts, Islamic real estate side, notable developments and investment trusts (iREITs), Islamic accomplishments include the structured products, Islamic venture establishment of the first Islamic capital, Islamic derivatives, Islamic equity unit trust fund in 1995 and the exchange traded funds (iETF), Shariah establishment of a full-fledged Islamic indices and Islamic stockbroking. stockbroking company, BIMB There are various stakeholders or Securities in 1994. participants who play different roles in the ICM, including investment and commercial bankers, investors, issuers, trustees, fund managers, stockbrokers and takaful operators. Module 12 Investment Management and Corporate Finance 1 - 14 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment In the ICM, transactions and activities The Malaysian government also are harmonised with the conscience of encourages the private sector to Muslims and consistent with the actively participate in the ICM. The principles of Islamic law or Shariah. In organisation or market players are this context, the ICM is free from normally represented by sector elements of usury (riba), gambling associations and working groups that (maisir) and ambiguity (gharar), which develop various self-regulatory Islam prohibits. Through ICM, capital guidelines to streamline the industry’s seekers such as the government, best practices for adoption by market corporations and individuals have players, to ensure a high standard of access to a larger pool of capital than professionalism and effective investor what is available if they were to rely protection. exclusively on bank borrowings. In developing the capital market, the SC ICM Regulatory requirements had identified the development of the Generally, the ICM in Malaysia is ICM as one of its main agendas, which governed by several Acts and the was later incorporated into the SC’s significant ones are as follows: Capital Market Masterplans. ICM Regulatory framework Capital Markets and Services Act 2007 As the ICM runs parallel to the conventional capital market, the regulatory frameworks of the capital Securities Commission market are applicable to the ICM, Act 1993 except in a few circumstances where specific laws, regulations and guidelines are provided exclusively for Banking and Financial the operation of the ICM. Institutions Act 1989 All matters pertaining to the conventional and the Islamic capital Islamic Banking Act 1983 markets come under the jurisdiction of the Ministry of Finance. The governing authorities of the ICM are the SC, BNM, Labuan Offshore Financial Services Companies Act 1965 Authority (Labuan FSA) and Bursa Malaysia. Module 12 Investment Management and Corporate Finance 1 - 15 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Shariah Advisory Council of the SC The SC has also introduced several The ICM Department of the SC carries guidelines, not just to interpret the out research activities and functions as legislations, subsidiary legislations and the secretariat to the Islamic rules relevant to the ICM, but also to Instrument Study Group (IISG). The signal the policy decisions that latter succeeded in exploring the participants in the ICM must follow, foundation for developing an ICM in such as: Malaysia. Thus, the SC viewed that it was important for the IISG to expand Guidelines on the Offering of its roles; consequently, it was upgraded Islamic Securities 2004 (ISG) to a more formal body called the Shariah Advisory Council (SAC) on 16 Guidelines on Islamic Fund May 1996. Its establishment was Management 2007 endorsed by the Minister of Finance and it was given the mandate to ensure Guidelines for Islamic Real Estate Investment Trusts (iREITs) 2008 the implementation of the ICM complied with Shariah principles. Its scope is to advise the SC on all matters Guidelines and Best Practices on Islamic Venture Capital 2008 related to the comprehensive development of the ICM and to function as a reference centre for all To enhance the performance of the ICM issues. overall activities in the conventional and Islamic capital markets and to The SAC represents the acme of all promote best practices in market Shariah matters in the ICM. As a conduct, the SC issued the Malaysian primary catalyst in the research and Code of Corporate Governance in 2000 development of innovative ICM (revised 2007), which provides products and services, the SAC acts as guidance to ICM players on the a reference centre for Shariah issues in standards of corporate governance, the ICM. Both the SC and the SAC best practices and disclosure. have been the pioneering efforts towards creating a more organised and efficient ICM. Module 12 Investment Management and Corporate Finance 1 - 16 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Under the amended Capital Markets Before ICM products and services are and Services Act 2007 (CMSA), His introduced to the market, they undergo Majesty the Yang di-Pertuan Agong a thorough process of research and may, on the advice of the Minister of deliberations to ensure their Finance after consultation with the SC, permissibility from the perspective of appoint persons as members of the Shariah. The SAC adopts two SAC who are qualified in: significant approaches for process: conducting research or fiqh muamalah studying the validity of 01 conventional instruments from the Shariah point of view, where Islamic jurisprudence the focus is on the mechanism and the usage of the Islamic finance instruments to ensure that they comply with Shariah principles any other relevant discipline formulating and developing new financial instruments 02 based on Shariah principles The SAC has been empowered to make rulings on any Shariah matter relating to ICM business or transactions The Quran and Sunnah are the primary referred to it by any court, arbitrator, sources of research used by the SAC. industry participant or other parties. In addition, the SAC also uses secondary sources and Islamic The SAC has been instrumental in the jurisprudence manhaj, such as ijmak, development of innovative Islamic qiyas, maslahah, istishsan, istishab, products and services and has played sadd zari`ah, `urf, maqasid syari`ah, a key role in transforming a niche siyasah syar`iyyah, ta’wil, istiqra’, talfiq growth sector into a core component and others which have already been of the Malaysian capital market. The applied in Islamic jurisprudence. recent amendments to the CMSA reflect the SAC’s significance and will further promote the development of the ICM in Malaysia and enhance its position as an international centre for Islamic finance. Module 12 Investment Management and Corporate Finance 1 - 17 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Bursa Malaysia Shariah screening Bursa Malaysia has established an In principle, Islamic equities are Islamic Markets division dedicated to characterised by the absence of the development of Shariah-compliant interest-based transactions, doubtful capital market products and services transactions and unlawful stocks of as well as trading platforms. Among companies which deal in non-Shariah others, the ICM products and services compliant activities or items. The SAC available in Bursa Malaysia are as has laid down general requirements for follows: all listed stocks classified as Shariah- compliant. Screening for Shariah- Bursa Suq Al-Sila’ compliant stocks is made at the central level by the SAC, where a List of Shariah-Compliant Securities is Shariah-compliant published every May and November to stocks accommodate the companies’ different financial periods. Sukuk The screening criteria are mainly based on the activities or sources of income of the companies. There is no Islamic Real Estate screening on debt or liquidity, which Investment Trusts implies that screening processes (iREITs) require income statements rather than Islamic Exchange balance sheets of the companies. Traded Funds Individual funds or investment (iETFs) companies do not perform their own Shariah screening. In addition to the issuance of Ringgit- denominated sukuk, the current The Shariah screening methodology issuance framework allows for issuers developed by the SAC involves to issue non-Ringgit-denominated qualitative and quantitative sukuk in Malaysia. Governing laws of parameters. The qualitative parameters Malaysia, England or United States involve the screening of the businesses may be used for bond documentation that are prohibited or disapproved by for both Ringgit and non-Ringgit- Shariah, where core activities of the denominated sukuk. In addition, both companies should be compatible with resident and non-resident issuers are Shariah principles. free to utilise proceeds from the issuance onshore and offshore. Module 12 Investment Management and Corporate Finance 1 - 18 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Under the resolutions of the SAC, it is necessary to draw up specific benchmarks to ensure that prohibited elements are minimal and related to those excused by the Shariah in order to determine the status of a mixed company as a Shariah-approved company/securities. This implies that the presence of prohibited elements does not affect the permissible part which is larger and more important. The SAC has taken a different approach in screening the activities of listed companies as compared to their Middle Eastern counterparts. While financial gearing is not tested, the SAC focuses on the primary activities of the companies. Thus, companies with more liquid than illiquid assets can be classified under this criterion For quantitative screening methodology, the SAC deals with the issues of mixed contributions from both permissible and non-permissible activities in determining the revenue and profit of a company which have passed the qualitative test. In order to establish the minimum acceptable level of mixed contributions from non- permitted activities, the SAC has established four benchmarks, which are based on juristic reasoning. To qualify, the companies should not breach any of the following benchmarks: The benchmark for acceptable revenues 01 or profits generated by clearly prohibited activities, such as conventional bank (riba), gambling, liquor and pork, is a maximum of 5%. A benchmark of 10% is imposed on 02 revenues or profits from activities involving prohibited elements that affect most people and are difficult to avoid, such as interest income derived from fixed deposits placed in conventional financial institutions or tobacco-related activities. Module 12 Investment Management and Corporate Finance 1 - 19 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment As for companies with mixed 03 contributions of revenues and profits, such as rental income derived from premises that operate non-Shariah compliant activities, including gambling, selling liquor and pork, the SAC’s benchmark is 20%. The highest benchmark of 25% is for 04 companies with activities that are generally permissible under Shariah and also maslahah (in public interest). However, there are certain elements that could affect the Shariah status of these activities, such as hotel and resort operations or share trading, which are deemed non-permissible according to the Shariah. Module 12 Investment Management and Corporate Finance 1 - 20 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Shariah principles and concepts The following Shariah principles and concepts are employed in developing ICM products or instruments: 1 Murabahah 5 Musharakah Refers to the sale and purchase Refers to a partnership between two transaction for the financing of an parties or more to finance a business asset or project whereby the costs and project whereby all parties contribute profit margin (mark-up) are made capital either in the form of cash or in known and agreed by all parties kind for the purpose of financing the involved. The settlement for the business project. Any profit derived purchase can be either on a deferred from the project will be distributed lump sum basis or on an instalment based on a pre-agreed profit sharing basis and is specified in the ratio, but losses will be shared on the agreement. basis of capital participation. 2 Bai ‘bithaman ajil 6 Istisna’ A murabahah-based transaction that refers to a deferred (instalment) sale Istisna’ is a purchase order contract of and purchase transaction for the assets whereby a buyer places an financing of an asset with a pre-agreed order to purchase an asset for delivery payment period. The sale price in the future. The parties of the includes a profit margin. contract are free to determine the price and the settlement can be arranged or delayed based on the schedule of the 3 Bai` al-`inah work completed. A sale and buy-back contract where the financier sells a product to the buyer at 7 Mudharabah/Muqaradhah an agreed price to be paid later. The financier then immediately buys back An agreement between two parties to the asset at a cash price lower than the finance a business venture. The parties deferred selling price. are rabb-al-mal (the investor who solely provides the capital) and mudharib (the 4 Ijarah entrepreneur who solely manages the project). Profits derived from this A manfaah (usufruct) type of agreement whereby the lessor (owner) project/investment will be distributed leases out an asset or equipment to its based on a pre-agreed ratio while any client at an agreed rental fee and losses will be borne by the investor up predetermined lease period upon the to the amount of capital contributed. aqad (contract).The ownership of the leased equipment remains in the hands of the lessor. Module 12 Investment Management and Corporate Finance 1 - 21 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Sukuk Sukuk are the Islamic alternative to bonds. As bonds represent debt capital with a fixed interest return and principal guarantee, they violate the Islamic rule of earning money from riba. More accurately, sukuk are translated as Islamic investment certificates or even participation certificates, which represent obligations of the issuer (the company or firm needing the funding, be it a corporate or a sovereign) to the sukuk holders. In Malaysia, the SC regulates the issuance of sukuk via the framework provided under the Guidelines on the Offering of Islamic Securities 2004 while the SAC regulates the Shariah component. The underlying relationship between the issuer and sukuk- holders could be based either on a sale transaction (murabahah, salam, or istisna`), a lease transaction (ijarah) or equity and agency relationships (musharakah, mudharabah and wakalah). Sale and lease transactions are naturally certain in their payment characteristics, whereas the equity and agency structures are naturally uncertain. Many sukuk transactions have been executed by combining different forms of transaction in order to craft a sukuk which have fixed income characteristics similar to traditional bonds. The salient features of common sukuk structures are summarised in Table 1. Table 11 Common sukuk structures Contractual Sukuk recovery of Explanation Sukuk-holders Return Structure principal expected Sukuk-holders (via a Owners of debt Profit from Murabahah trustee) sell asset to (sales receivable) sale of asset Yes obligor on a deferred basis Owners of Profit earned Sukukholders Buy fungible commodity to be upon Delivery of Salam asset (commodity) on a delivered in future sold commodity Yes forward basis (debt in kind) to third party Sukuk-holders construct/ Owners of debt manufacture asset and sell (receivable via sale Istisna` it to obligor of asset under Profit from sale Yes construction) 1 Securities Commission Malaysia, “Sukuk and the Capital Market”, Islamic Capital Market Series – Sukuk (Kuala Lumpur: Sweet & Maxwell, 2009), p 23. Module 12 Investment Management and Corporate Finance 1 - 22 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Contractual Sukuk recovery of Explanation Sukuk-holders Return Structure principal expected Sukuk-holders lease Owners of leased Rental By control Ijarah asset to obligor asset of asset of the asset Sukuk-holders and obligor Owners of Income are both capital providers Musharakah and thus partners in a underlying asset of generated from No venture asset/venture Venture Sukuk-holders are capital Owner of Income Mudharabah providers to obligor in a underlying asset of generated from No business Venture venture asset/venture IOSCO The SC was also given a mandate by the Executive Committee of the International Organisation of Securities Commissions (IOSCO) to lead the Islamic Capital Market Task Force (ICMTF). The mandate was given during the IOSCO Annual Conference and meetings held in May 2002 in Istanbul. IOSCO’s main task is assessing the state of play and development potential of Islamic financial products and activities; determining any specific and/or general regulatory gaps in the area; and, enhancing the level of knowledge of IOSCO member jurisdictions in financial products and activities based on Islamic principles offered across the globe. IOSCO is the world's most important international cooperative forum for securities regulatory agencies and its members regulate more than 90% of the world's securities markets. As the leading international policy forum for securities regulators, IOSCO plays a key role in setting the international standards for securities regulation, identifying issues affecting global markets and making recommendations in meeting those challenges. Module 12 Investment Management and Corporate Finance 1 - 23 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment 1.5 Regulatory Framework of the Malaysian Capital Market This section highlights the relevant rules and regulations of the securities market and some of the changes that have taken place in the regulatory environment over the years. Dealings in securities in Malaysia are governed by a framework of legal provisions, policies and administrative guidelines which are administered by various authorities. There are now four principal authorities involved in regulating the capital market. The regulatory authorities and their main regulatory functions are as follows: Securities Commission Malaysia 1 Supervising exchanges, clearing Regulating all matters relating to 6 houses and central depositories unit trust schemes 2 Registering authority for Licensing and supervising all prospectuses of corporations 7 licensed persons other than unlisted recreational clubs 3 Approving authority for corporate 8 Encouraging self-regulation bond issues Regulating all matters relating to Ensuring proper conduct of 4 9 market institutions and licensed securities and futures contracts persons 5 Regulating the take-over and mergers of companies Module 12 Investment Management and Corporate Finance 1 - 24 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Bank Negara Malaysia (BNM) Implements, control and supervise mechanisms in the banking system of 1 Malaysia 2 Ensures the orderly growth and expansion of the banking and financial infrastructure in Malaysia Regulates and supervises financial institutions who fall under the 3 category of `registered persons’ under the Capital Markets and Services Act 2007 4 Implements control and supervisory mechanisms for the banking system of Malaysia Module 12 Investment Management and Corporate Finance 1 - 25 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Suruhanjaya Syarikat Malaysia (SSM) 1 Oversees substantial shareholding reporting requirements 2 Enforcement of offences under the Companies Act 1965 which relate to the securities industry 3 Lodgement of prospectuses, except for the lodgement of unit trust prospectuses, which resides with the SC. Module 12 Investment Management and Corporate Finance 1 - 26 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment Ministry of International Trade and Industry (MITI) 1 Recognition of Bumiputra interests for compliance with the National Development Policy 2 Provision of regulatory approvals for issuance of securities by companies regulated by MITI, such as manufacturing companies As can be seen above, capital market exercises may require the approval of more than one authority. The regulatory provisions for the market are made through legislation such as the Capital Markets and Services Act 2007, Securities Commission Act 1993, Companies Act 1965, the listing requirements of the Bursa Malaysia Securities Berhad and the various guidelines issued by the SC. The Companies Act 1965 governs companies operating in Malaysia. It sets out the various disclosure requirements relating to the form and content of the statutory accounts as well as the responsibilities of the directors in the preparation of a company’s financial statements for filing purposes. The Securities Industry (Central Depositories) Act 1991 was enacted to establish and maintain a central depository system. An important requirement laid down in the Securities Industry (Central Depositories) Act 1991 is set out in subsection 25(4), which states that every securities account opened with the central depository shall be in the name of the beneficial owner of the deposited securities or in the name of an authorised nominee. Module 12 Investment Management and Corporate Finance 1 - 27 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment The Capital Markets and Services Act 2007 (CMSA) came into force on 28 September 2007, marking another major milestone in the SC’s continued measures to strengthen the capital market regulatory framework, improve business efficacy and further enhance investor protection by: 1 recognition of Bumiputra interests for compliance with the National Development Policy allowing the SC to recover three times the amount of losses through 2 civil action for a wider range of market misconduct, including market manipulation 3 requiring application monies of sophisticated investors to be held on trust in fund- raising exercises 4 enhancing the standards of trustees for debenture holders 5 extending investor protection provisions to clients of financial institutions The CMSA increases the efficiency of the fund-raising process in that the SC’s approval on corporate proposals such as share splits or share consolidations and entitlements in respect of warrants, options or rights are no longer required. This act basically consolidates the Securities Industry Act 1983, Futures Industry Act 1993 and Part IV of the Securities Commission Act 1993 which deals with fund raising activities. Bursa Malaysia is responsible for the surveillance of the market place and the enforcement of the listing requirements which spell out the listing prerequisites and continuing disclosure obligations to be maintained by the public-listed companies. Bursa Malaysia continually reviews and revamps listing requirements with an objective to enhance corporate governance, corporate transparency and efficiency in capital market activities, strengthen investor protection and promote confidence. Module 12 Investment Management and Corporate Finance 1 - 28 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my  1 Overview of the Investment Environment BNM regulates the activities of financial institutions through the Banking and Financial Institutions Act 1989 (BAFIA), which was enacted to provide laws for the licensing and regulating of institutions carrying out banking, financing, merchant banking and discount house activities. It is BNM’s overall responsibility to monitor the extent of public and private debt as part of its policy measures to manage liquidity and contain inflation within the economy. In the aftermath of the financial crisis in I997, further efforts were made to build up the Malaysian securities industry. One of the key regulatory reforms is the transition of the industry to a disclosure-based regime (DBR) in 2003. The shift from merit-based regulation to DBR, with emphasis on disclosure, due diligence and corporate governance, is necessary to increase efficiency and transparency in the capital market. As an effort for continued improvement, further actions were taken by the SC, such as amending the Companies Act 1965 to address gaps in related-party transactions, penalties for contravention by directors as well as private enforcement capacity of investors and disclosure; amending the listing requirements for stricter disclosures by listed companies; implementing measures to expand the role of the audit committee in line with international best practices; and transforming GLCs into high-performing entities and upgrading of GLC boards. Module 12 Investment Management and Corporate Finance 1 - 29 www.sidc.com.my © Securities Industry Development Corporation 2022 www.sidc.com.my 1 Overview of the Investment Environment In Summary We have briefly provided an overview of the investment environment in Malaysia. Over the years, the market has developed progressively and consistently with strong economic growth of the country. Much of the progress is attributable to the efforts of the government and the general market participants. The capital market composition can be broadly classified under asset classes, activities, participants and the regulatory framework. We have also provided a general picture of the market institutions in the Malaysian capital market and how they are essential to the overall financial and economic development of the country. The current forces of globalisation, deregulation in the financial sector and the development of information and communication technology are some of the potential factors leading to the intense competition faced by the capital market of emerging economies. In an environment of increasing liberalisation and globalisation, Malaysia is constantly assessing and reviewing significant capital market developments and regulatory issues. We have looked at the introduction of new products and services in the various markets segment in Malaysia, in particula