By Emmanuel Samarathisa
RECENTLY, Bursa Malaysia Bhd announced it would be a leaner entity next year. Or at least that was the crux of its statement on Nov 22.
As usual, when most of us hear such pledges, we gush. “Finally, there will be a separation of powers. Also, what’s not to love about having a lean entity?” analysts tell me.
What will happen at Bursa Malaysia is some positions such as the chief commercial officer (CCO) and chief operating officer (COO) will cease. This means current CCO Selvarany Rasiah and COO Azalina Adham will not have their contracts renewed. Also bidding goodbye is chief regulatory officer Yew Yee Tee.
Instead, there will be a new position: the chief executive officer (CEO) of regulation, among others. Perhaps for the first time, in the history of Bursa Malaysia, we will have a dual-CEO structure. Does this mean the powers of current CEO Datuk Muhamad Umar Swift will be curtailed?
Sure, according to Bursa Malaysia, what we now have is a flatter organisation. The current business leadership team will report directly to Umar. The man himself will also be bestowed upon a greater span of direct management and oversight of business functions.
“The organisational restructuring will make Bursa Malaysia a more agile and efficient organisation, better able to meet the changing needs of customers and stakeholders in a fast-evolving global market,” Umar said in a statement on Nov 22 in response to the managerial shifts.
But who are we kidding here? First, the void has to be filled. We have one transition on paper – that is the chief regulatory officer will now become the CEO of regulation. Also, Bursa Malaysia promised a smaller, purpose-driven outfit. But we are only privy to the bits and bobs – not the entire setup. So we don’t know whether the end result is truly a leaner outfit.
Here’s the bigger picture: Without the regulations aspect, Umar is just the CEO of a typical publicly listed company. He is a man with minimal influence in the Bursa scheme of things. But I could be wrong here because organisational structures might paint a different picture – a picture we do not clearly have at this point in time.
Now Umar’s appointment as CEO in December last year did pique curiosity. Prior to Bursa Malaysia, he was group CEO and group managing director of insurer MAA Group Bhd. He is a chartered accountant and has a significant experience in banking and financial services.
His predecessor Datuk Seri Tajuddin Atan was on a different league. Before leading Bursa Malaysia, Tajuddin was managing director of RHB Bank Bhd and group managing director of RHB Capital Bhd. He also had a chance to familiarise himself with the Malaysian capital market as he served as a non-executive director and public interest director on the board of Bursa Malaysia from July 2008 until March 2011. Umar lacked that pedigree.
On paper, at least, the new structure separates the business and regulatory aspects of Bursa Malaysia. This balancing act between stern and sexy is not unique to Bursa. Regulatory safeguards have been debated and mulled when stock exchanges worldwide began demutualising in the 1990s. The concern revolves around stock exchanges and their need to attract and retain listings to rake up earnings. They have to do this without neglecting their fiduciary duty to shareholders.
According to Bursa Malaysia’s 2018 annual report, there were 783 listed companies on the Main Market, 119 on the ACE Market and 13 on the Leading Entrepreneur Accelerator Platform (LEAP) Market. The latter is geared towards small and medium enterprises (SMEs). LEAP remains a draw as SMEs could circumvent the stringent requirements of the Securities Commission (SC) over Main Market listings.
Also as per the annual report, Bursa Malaysia receives its sales and profits from running the stock market. Its operating revenue mostly comes from securities and derivatives trading as well as listing and issuer services. According to its yearly financials, Bursa Malaysia recorded a net profit of RM224 mil for FY18.
But, Bursa Malaysia is the stock market police. It has to regulate the behaviour of public-listed companies and market intermediaries which are a source of its income. The nature of our stock exchange is that it is a disclosure-based regime, so while regulators are tasked to protect investors and uphold public interest, investors are expected to be responsible for their investment decisions based on information provided by the listed companies.
The problem is the quality of the disclosure. Market participants also point out that the unwritten rule is still a “merit-based” regime. One of the pain points they highlight is the unusual market activity (UMA) query. Here Bursa Malaysia promises action to companies that do not provide a reply when slapped with a UMA.
This is prescribed in Paragraphs 9.11 and 9.16 of the listing requirements where companies are obligated to announce to the bourse any material information not previously released to the market that may trigger a UMA query as well as ensuring that the disclosure is accurate.
Critics of this system say there has to be a balance of the carrot-and-stick approach used by Bursa Malaysia. “You need to allow some – keyword here: some – speculation in the market,” says a market participant.
Solution across the straits?
One answer to how we should approach business and regulation at the stock exchange is found across the causeway. The Singapore Exchange in 2016 announced that it will set up a separate entity called the Singapore Exchange Regulation Pte Ltd (SGX RegCo) to assume regulatory powers.
Questions still remain over SGX RegCo’s independence, transparency and, most of all, effectiveness. This last bit is usually justified through that infamous case involving Malaysians John Soh Chee Wen and Quah Su-Ling. Both have been charged with 189 and 178 charges respectively. These mostly involved the giving of instructions over several trading accounts used to allegedly manipulate shares in Asiasons Capital Ltd, Blumont Group Ltd and LionGold Corp Ltd. Hooray, Malaysia Boleh!
Over here, enforcement has been at a snail’s pace. Just look at the number of insider trading cases that are open. Till today we are awaiting the fate of Supermax Corp Bhd co-founder Datuk Seri Stanley Thai over his insider trading charge. He was sentenced to five years’ prison on Nov 24, 2017. That was like… two years ago?
But whichever way you see it, the answers to an effective stock exchange are complex. Maybe, in our case, we should defer regulations totally to the SC. So that acts as the long arm of the law while Bursa Malaysia is purely business. But the longer we mull over this, the more we will be at a disadvantage. Our stock market remains unattractive.
If foreign funds were the benchmark, then they have yanked RM9.17 bil of local equities as of Nov 22 or 78.4% of last year’s total foreign outflow of RM11.69 bil. This makes Malaysia, in terms of indices, a laggard as compared to its peers in Southeast Asia. According to Bloomberg data, the FBM KLCI’s 12-month forward earnings estimate has dropped more than 12% since Pakatan Harapan assumed power in May last year.
While the reasons for that are complex, from the US-China trade war to political uncertainty from within, the point is we are no longer an attractive destination. That should be fixed.
Sadly, a new chief of regulation doesn’t point to a resolution in that direction. In fact, if anything is clear about this whole reshuffling drama, it is that ironically, the Bursa, a publicly listed entity with a fiduciary duty to its shareholders, was never entirely transparent with all the changes.