Kuala Lumpur Stock Exchange Enhances Foreign Interest In Malaysian Shares

The Kuala Lumpur Stock Exchange (KLSE) is enhancing foreign interest in Malaysian shares through the regulation of depository receipts. The regulation of the depository receipts was put in place with amendments to the rules of Malaysian Central Depository Sdn Bhd (MCD) which have been approved by the Securities Commission recently. A depository receipt is a security which accords a right to the holder of the security to own certain quantity of securities of an issuer listed on a stock exchange. Depository receipts issued and traded in the United States of America are termed as American Depository Receipts (ADR), whilst those issued outside the U.S. are termed Global Depository Receipts (GDR). The amendments to the rules of MCD were made pursuant to the decision of the Securities Commission to allow sponsored ADR/GDR programmes to continue to operate for Malaysian listed companies. Key points to the amendments are five regulations to facilitate custodian banks holding underlying securities for sponsored ADR/GDR programmes. The regulations include: The depository receipt programme must be a sponsored depository receipt programme. This is to ensure that the programme is registered with the proper regulators, that there is compliance with the disclosure requirements of the regulators and direct participation in the programme by the issuer. This would increase transparency of investor activity. As an example, a sponsored ADR would require registration with the U.S. Securities Exchange Commission and compliance to its requirements. The approval of MCD must be obtained for holding underlying shares in a GDR. This measure would enable MCD to monitor and evaluate appropriate GDR programmes. The underlying securities for each depository receipt programme are held by not more than five (5) custodians. The limit of five custodians per ADR/GDR is to enable MCD to effectively monitor the total number of underlying securities for each programme. The total number of underlying securities for all depository receipts entered into by an issuer on the stock exchange is not more than 5% of the total issued and paid-up capital of the issuer as defined in the Rules of KLSE. This limit is to ensure that the ADR/GDR programme supports the conduct of a fair and orderly market for KLSE as the primary market for Malaysian listed securities. Each custodian shall hold the underlying securities for a depository receipt programme in a securities account opened solely for that purpose and is clearly designated in the manner prescribed by MCD. This requirement would enhance transparency and facilitate the Malaysian regulatory authorities to monitor ADR/GDR activities effectively. Among the important benefits the regulations of depository receipts will achieve in contributing to enhancing foreign interest in Malaysian shares are: Increasing the profile and liquidity of Malaysian shares whilst enabling Malaysian companies to maintain an international profile. Providing foreign investors with options to trade in Malaysian securities. Attracting long-term investors. The rules governing ADR/GDR will come into effect beginning Monday, May 3, 1999. Participants who want to issue sponsored ADR/GDR are required to comply with the new rules starting today. Participants of unsponsored ADR/GDR programmes are required to regularise their position in line with the new rules before June 3, 1999.