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Malaysia's new capital market guidelines

January 3, 2013 Business Times
MALAYSIA has amended its capital market laws and issued some new guidelines in a move that will enable investors to have a new asset class - known as business trusts - to invest in.

It will also allow public-listed companies and banks to sell bonds to retail investors, among other things.

The changes fall under the Capital Markets and Services (Amendment) Act 2012 (CMSA 2012), which came into effect on December 28 last year.

The capital market regulator, Securities Commission Malaysia (SC), yesterday released guidelines for business trusts.

Business trusts are created when a company hives off some of its assets into the care of an appointed party that acts as both trustee and manager of the assets.

The trustee-manager, which then legally owns those assets, manages them for the benefit of unitholders looking to ride on the assets' prospects.

Assets that are hived off and put into a business trust are essentially yield-generating assets. Hence, in Malaysia, it is anticipated that infrastructure companies such as toll-road owners and independent power producers, as well as telcos, will be the ones most likely to set up business trusts.

Business trusts here will be introduced over two phases, the first phase requiring the trusts to be listed and having a market capitalisation of RM1 billion. The later phase will allow for foreign and unlisted offerings.

Interestingly, numbers forecast operator Berjaya Sports Toto last year announced plans to list a business trust in Singapore.

CMSA 2012 also saw the introduction of an approval framework for unlisted capital market products such as unit trusts, and the SC issued guidelines on the sales practices of such products.

Among other things, sellers of the products will be required to give investors a "product highlight sheet" at the point of sale that will enable them to do product comparisons and make more informed investment decisions.

Malaysia also created a consolidated Capital Market Compensation Fund (CMCF), which is basically a merger of four existing such funds, that will be managed by a single corporation.

Its scope of compensation to individual investors has widened to include private retirement schemes as well as claims arising from the mis-selling of products by stockbrokers and fund managers.

The CMCF, to which brokers and fund managers contribute yearly, will compensate investors only if the contributors become insolvent.

The maximum amount the fund can pay out to an investor has yet to be decided upon, but it is understood that what's currently being discussed is RM100,000.

Meanwhile, listed firms and banks will now be able to sell bonds and sukuk (Islamic bonds) to retail investors because of revisions to the SC's guidelines on private debt securities as well as sukuk.

All the latest changes and new guidelines in the capital market are meant to encourage market and product innovation, promote efficiency and allow investors to make more informed investment decisions, the SC said in a statement yesterday.

"The initiatives will reinforce the appeal and vibrancy of our capital market and build on the record level of funds raised in 2012 of RM145.9 billion, a 89 per cent increase compared to the RM77.2 billion raised in 2011," its chairman Datuk Ranjit Ajit Singh said.