Chief Executive Officer of Bursa Malaysia Berhad, Yusli Mohamed Yusoff said the revamped MMLR is a major achievement in promoting the MESDAQ Market as an attractive hub for investing in young but quality technology-based and high growth companies.
“We embarked on this revamp to further promote the integrity, credibility and efficiency of our MESDAQ Market which in turn will increase investor confidence in this market,” added Yusli.
The key objectives of the revamp are to raise the profile of the MESDAQ Market, improve the quality of MESDAQ listed companies (“MESDAQ companies”), increase standards of corporate governance and disclosure, accord greater investor protection, attract greater investor interest and overall improve standards to be on par with other similar markets.
Yusli said that in formulating the enhanced framework under the revamped MMLR, Bursa Securities was mindful to preserve an environment that encourages sustained growth and investibility for MESDAQ companies. The approach taken was to strike a careful balance between enhancing market regulations and promotion of business efficacy.
The revamped MMLR is expected to benefit not only the MESDAQ companies, but also the advisers, sponsors, shareholders and investors in general. Bursa Securities anticipates that with higher standards of conduct, transparency and accountability expected of these companies under the revamped MMLR, there will be greater investor interest in the MESDAQ companies and enhanced long term value for shareholders. MESDAQ companies, their shareholders and the investing community will benefit from greater efficiencies in capital market activities, improved investor protection and enhanced clarity in the regulatory framework.
Commenting on the significance of the revamped MMLR, Bursa Malaysia Berhad’s Chief Legal Officer, Selvarany Rasiah said that through the revamped MMLR, Bursa Securities has raised the bar for the conduct of MESDAQ companies after listing. “In order to build a dynamic and robust MESDAQ Market with ample liquidity and credibility, a strong foundation must be laid. The revamped MMLR is an integral part of Bursa Securities’ efforts to build this firm foundation. By emphasising on transparency, corporate governance, quality and investor protection, the revamped MMLR will set the tone for MESDAQ companies to increase their attractiveness as investment options”. She further added that the revamped MMLR had significant input from industry and is a fine example of collaborative efforts by those involved, to enhance the profile of the MESDAQ Market.
The revamped MMLR came about after an extensive consultation process with industry participants as well as benchmarking studies carried out on other comparable stock exchanges.
The key changes made under the revamped MMLR include:
- Enhanced corporate disclosure and transparency
Under the existing MMLR, the disclosure requirements, in particular the Corporate Disclosure Policy was prescribed as Guidance Notes. Under the revamped MMLR, however, the disclosure framework has been strengthened and made more comprehensive by amongst others, incorporating an improved version of the Corporate Disclosure Policy as rules, imposing a stricter standard of disclosure for announcements, prescribing a specific standard of disclosure for circulars, prescribing and enhancing the minimum content of announcements and circulars for certain types of events, new issues of securities and transactions, requiring specific disclosures of dealings in securities by the MESDAQ company, enhancing the prescribed minimum contents for annual reports. The quality of disclosure in research reports issued by MESDAQ companies twice during their financial years is expected to improve with stricter rules regarding their contents. Further, the revamped MMLR also stipulates statutory declarations accompanying the accounts of the MESDAQ company must be signed by a person with the requisite prescribed financial or accounting qualifications.
Thus, with the revamped MMLR, the timeliness, level and quality of disclosure and transparency are expected to improve, thereby enabling the investing community to make better investment decisions. The higher levels of transparency expected of MESDAQ companies will in turn, lead to greater accountability on the part of the MESDAQ companies and their directors.
- Enhanced corporate governance framework
Whilst previously there were corporate governance requirements, these were prescribed in the form of recommended best practices. The revamped MMLR now contains a strengthened framework for corporate governance which seeks to improve the level of corporate governance in MESDAQ companies by mandating MESDAQ companies to comply with certain minimum corporate governance standards. This includes, for example, increasing the prescribed minimum number of independent directors on the boards of listed companies, disqualifying certain persons from acting as directors or otherwise being involved in the management of listed companies and enhancing the requirements relating to audit committees. An audit committee report that contains certain prescribed minimum information must be included in the annual report of the MESDAQ companies.
An important enhancement is the introduction of the Malaysian Code on Corporate Governance into the revamped MMLR. With this requirement, MESDAQ companies are required to disclose in their annual reports, their governance practices and to explain departures from the best practices contained in the Code. Armed with this information, investors will be better placed to assess the state of corporate governance of MESDAQ companies and thus, make more informed investment decisions. In addition, MESDAQ companies are now also required to ensure that the statements on internal control made in the annual reports are reviewed by their external auditors.
- Enhanced continuing listing obligations
In addition to the disclosure and corporate governance obligations, other post listing obligations have also been enhanced significantly via the revamped MMLR, to accord better investor protection and instil greater investor confidence in MESDAQ companies. Bursa Securities has now prescribed a rule that restricts the right of MESDAQ companies to provide financial assistance. This is aimed at deterring the dissipation of assets of the MESDAQ company. The revamped MMLR also provides that MESDAQ companies must now obtain shareholder approval before materially diluting their interests in a principal subsidiary or before listing their subsidiaries on any stock exchange. This ensures that such corporate proposals which may involve the listed company’s key resources can only be undertaken with the shareholders’ sanction.
The revamped MMLR also specifically provides that MESDAQ companies must maintain the requisite minimum issued and paid-up capital throughout their listing on Bursa Securities. Whilst previously a subjective level of public shareholding spread is required to be maintained post listing, now under the revamped MMLR, MESDAQ companies are required to ensure an objective and higher level of public shareholding spread throughout their listing. This will ensure there is sufficient liquidity in their securities.
- Enhanced requirements to ensure quality of MESDAQ companies
With the market’s increasing call for better quality listed companies, the revamped MMLR now specifically provides obligations that are targeted that ensuring that the MESDAQ companies focus on their financial health and take expeditious steps to restore their condition to an acceptable level. The new requirements introduces a set of prescribed criteria which are modelled on similar requirements found for the main markets, but only more stringent, which if triggered, would necessitate the MESDAQ companies affected to undertake a comprehensive plan to regularise their condition. MESDAQ companies which fail to undertake such regularisation risk suspension and de-listing.
- Enhanced efficiency
The revamped MMLR also contains provisions that promote expediency and efficiencies in the market. These include requirements that exempt MESDAQ companies from procuring Bursa Securities’ approval for amendments to their articles of association and other specified documents, allowing the flexibility of issuance of annual reports in the form of CD-ROM by way of the rules, prescribing a fixed timeframe for allotment of securities pursuant to an exercise of ESOS or conversion of convertible securities to ensure speedy allotment of securities and requiring shareholder approval for issuance of securities to substantial shareholders and persons connected with them as opposed to shareholder approval for issuance of securities to any shareholder, regardless of its shareholdings.
- Enhanced framework for related party transactions
Improvements have been made to the framework governing transactions, in particular, related-party transactions to promote expediency and at the same time, increase protection for shareholders and investors’ interests. Previously all related party transactions must be approved by shareholders, including insignificant transactions. With the revamped MMLR, only related party transactions that trigger 5% are required to be approved by shareholders. Similarly only recurrent related party transactions that exceed a certain threshold are required to be disclosed to the market. In addition more transactions have been clarified as being non-related party transactions. These rules serve to promote business efficacy and reduce cost of compliance by the MESDAQ companies. At the same time, MESDAQ companies are now required to appoint an independent adviser to advise minority shareholders on the transaction. Where the size of the related party transaction hits a prescribed threshold of 25%, MESDAQ companies would need to appoint a main adviser in addition to the independent adviser.
- Enhanced role of Advisers and Sponsors of MESDAQ companies
Due to the nascent nature of MESDAQ companies upon listing, they are required to engage the services of sponsors upon and after listing, whose role is primarily to advise and guide these companies on their obligations and ensure disclosures made by these companies comply with the MMLR. Advisers who are registered in a register maintained by Bursa Securities, on the other hand, are required to be appointed to submit listing applications to Bursa Securities. The roles of both the Advisers and sponsors have been reviewed, streamlined and made more effective under the revamped MMLR.
Taking into account the feedback of industry and practices of other comparable markets, the duration of sponsorship has been reduced from 5 years to 3 full financial years, but the role of sponsors, as mentioned has been augmented to ensure that they provide more value-added service and play a more proactive role in ensuring compliance of MESDAQ companies under their charge with the high standards of disclosure imposed on them under the revamped MMLR. MESDAQ companies, on the other hand, are required to seek the advice of their sponsors when they are contemplating certain transactions, to ensure that they are well aware of their obligations.
- Enhancing the attractiveness of the MESDAQ Market
The revamped MMLR introduces new provisions which allow eligible MESDAQ companies to undertake certain corporate exercises which may help to raise their profile, attract more investors and increase their liquidity. This includes new provisions allowing the issuance of structured warrants and sponsorship of depository receipt programmes by MESDAQ companies.
Further, MESDAQ companies who have been listed for more than 3 years may also now undertake share buy-backs under the revamped MMLR.
- Strengthened enforcement framework
Bursa Securities continues to emphasise on strict and objective enforcement of non-compliance with the MMLR, with a strengthened framework for enforcement. Under the revamped MMLR, Bursa Securities has incorporated new provisions to stipulate that directors providing information to their MESDAQ companies must ensure that such information is complete and accurate, MESDAQ companies are responsible to ensure compliance by their officers or employees with any direction given by Bursa Securities and the type of penalties that may be imposed has been expanded.
A brief summary of some of the key changes made under the revamped MMLR is provided in Appendix 1.
Effective date for the revamped MMLR
The revamped MMLR will generally take effect from 3 July 2006. However, certain provisions will take effect in May 2006, such as the requirements relating to cash companies, financial condition and level of operations and default in payment and the provisions relating to classification of applicants and listed companies and enforcement matters, all of which will take immediate effect from 8 May 2006. In addition, the requirements pertaining to the provision of financial assistance will take effect from 22 May 2006. A list of the relevant requirements which will take effect before 3 July 2006 is set out in Table A in Appendix 2.
To promote understanding of the MMLR and enhance compliance by the MESDAQ companies, Bursa Malaysia will be holding a briefing on 17 March 2006 for all MESDAQ companies, advisers, sponsors and selected industry participants. Attendance is by invitation only.
The complete text of the new MMLR is available for reference along with a set of frequently asked questions and answers on Bursa Malaysia’s website at www.bursamalaysia.com.
The revamped MMLR is also available for sale at the Public Information Centre of Bursa Malaysia.
