Executive Chairman Dato' Mohd Azlan Hashim said for the KLSE to remain as the premier market for trading in Malaysian securities, KLSE needs to continually ensure we have the premier supporting infrastructure and industry participants.
"When we talk of international requirements and competitive edge - we know that there can never be any let up in our efforts.
"As attractive as capital and securities investment conditions can be, such attractions can quickly fade and just as quickly be discounted when not supported by first class supporting infrastructure and services in clearing, settlement and depository," he said.
Mohd Azlan was giving his opening address at the Clearing, Settlement & Depository Workshop organised by the Malaysian Central Depository Sdn Bhd (MCD) and Securities Clearing Automated Network Services Sdn Bhd (SCANS).
Organised for the first time, the workshop was attended by over 160 participants from 78 organisations. These organisations represent a broad spectrum of the securities industry including stockbroking companies and custodian banks which are the clearing members of SCANS and Authorised Depository Agents and Authorised Direct Members of MCD. The workshop covered a comprehensive range of issues including strategic initiatives to enhance infrastructure support, market intermediaries' operations and consolidation of market institutions.
Mohd Azlan said in organising the workshop, industry findings and feedback can be effectively collated to be part of an implementation plan for the sustainable, progressive growth of the Malaysian capital market and securities industry.
In his opening address, Mohd Azlan said in meeting the challenges of restructuring the form and substance of the domestic capital market and the securities industry, parallel effort has been put forward to strengthen relevant supporting infrastructure.
"Encapsulating the way forward into the future for the industry, is the Capital Market Masterplan. In itself, it is a vital route map - more so because it is a composite product of feedback and requirements from market participants, industry practitioners and regulators, including the KLSE Group," he said. Mohd Azlan said in formulating the strategic initiative to enhance the competitive position and efficiency of market institutions, the three key objectives for market institutions are:
- to consolidate domestic exchanges and clearing institutions to obtain economies of scale and optimise use of resources
- to ensure domestic exchanges are well-positioned to respond to changing market requirements through the practice of flexible business structures and market oriented strategies
- to enhance the efficiency of the trading, clearing and settlement infrastructure.
Enhancements implemented by SCANS include:
- Institutional Settlement Service (ISS) - ISS achieves the objective of reducing the settlement risk exposure whilst making clearing and settlement for institutional investors more effective and cost efficient. ISS for on-market transactions has been available since 1999 and SCANS will expand ISS for direct business transactions beginning Wednesday, 18 July 2001.
- T+3 Settlement Cycle - To meet the international requirement for shorter settlement cycles and in-line with the G-30 recommendation for best settlement practices, SCANS has implemented the T+3 settlement cycle since the year 2000. Given industry support and readiness, the T+3 settlement cycle has been successfully implemented and adopted without any problems since its introduction. The implementation of the T+3 settlement cycle has significantly placed the clearing and settlement practice of the Malaysian securities industry in line with internationally accepted requirements.
- Clearing Guarantee fund - In line with internationally accepted requirements, a Clearing Guarantee Fund is to be established as a collective industry effort to enhance the reliability and security of the clearing and settlement system. In addition to existing facilities to contain systemic risk, the industry has recognised the key benefits provided by the clearing guarantee fund, which include:-
- enhancing safety and soundness to the securities market by substituting counterparty risk to SCANS as a central counterparty in providing settlement assurance
- increasing market efficiency and transaction costs to direct participants by eliminating the process of settlement obligations among members
- promote investors confidence and market interest, as the clearing house - SCANS is expressly guaranteeing the settlement of securities transacted on the exchange
- Reduction in SCANS Clearing Fee - In developing an efficient and secure clearing and settlement infrastructure, SCANS is also committed to contributing towards enhancing industry cost-effectiveness. Towards this end, SCANS has proceeded to reduce its clearing fees from 0.05% to 0.04%, with a maximum of RM200 per contract from 1 July 2001, to contribute to the overall reduction in industry transaction cost. This reduction will have a corresponding reduction on MCD's custodian fee and the portion of the Securities Commission's levy derived from the clearing fee.
- Full Immobilisation - In enhancing efficiency and security of the central depository, MCD achieved full immoblisation of its securities since 1998, where over 99% of securities are immobilised. The remaining balance takes into account the time processing gap of new securities issues and securities under exempted depositors in relation to dual listings and securities subject to legal proceedings. Since 1998, all new securities issues are made by way of direct credit into the accounts of securities holders.
- Transparency Measures - MCD enhanced its disclosure requirements contributing to a high degree of transparency in securities dealing and ownership on the KLSE. MCD strengthened its rules and regulations in 1998 to improve disclosure requirements of beneficial owners in securities dealings, including dealings through nominee accounts.
"It was certainly with industry participants' co-operation and support that MCD and SCANS have progressed to where they are today.
"If there is a feeling amongst us that there has been significant effort put in these last few years, and that there have been significant achievements, the credit must be due to you - the industry participants who have been forthcoming in providing ideas and suggestions for improvement.
"It is in this area that the best ideas and effort for progress and advancement can continue to be forwarded, developed, implemented - together and for the good of all," Mohd Azlan said.
