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Lecture 11

Lecture 11. Overview of the Malaysian Capital Market. Financial Markets. Markets in general Physical assets Financial assets Money vs. Capital Primary vs. Secondary Spot vs. Future. Three Primary Ways Capital Is Transferred Between Savers and Borrowers. Direct transfer

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Lecture 11

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  1. Lecture 11 Overview of the Malaysian Capital Market

  2. Financial Markets • Markets in general • Physical assets • Financial assets • Money vs. Capital • Primary vs. Secondary • Spot vs. Future

  3. Three Primary Ways Capital Is Transferred Between Savers and Borrowers • Direct transfer • Investment banking house • Financial intermediary

  4. Malaysian Capital Markets • Capital Markets: • Share or Equities Market • Debt Securities Market • Derivative Market

  5. The Institutions • The Regulators • The Exchanges • The Clearing Houses and the Central Depository System • The Intermediaries • The Service Providers

  6. The Regulators • The Securities Commission • Set up under Securities Commission Act 1993 • Two-fold mission • A Regulator • A Developer of Malaysian Capital Market

  7. The Regulators • Companies Commission of Malaysia • Established in April 2002 • Administers the following law • The Companies Act 1965 • Trust Companies Act 1949 • Registration of Businesses Act 1956 • Kootu Funds (Prohibition) Act 1971 • Other subsidiary legislation under these Acts

  8. The Exchanges • An organisation that provides a marketplace or facilities for buyers and sellers to execute trading in the type of securities quoted on that exchange • Two Types: • Bursa Malaysia • The Malaysian Derivatives Exchange

  9. Bursa Malaysia • Companies are listed in any of the following: • Main Board (bigger capitalised companies) • Second Board (smaller-sized companies) • Mesdaq Market (for technology and growth companies) • One equity exchange • Co-regulation – Securities Industry Act 1983 • Electronic Trading

  10. Malaysian Derivatives Exchange (MDEX) • Exchange for the trading of all futures and options contract. • Five products: • Crude palm oil futures • KL Composite Index Futures • KL Composite Index Options • 3-month KLIBOR futures • 5-year Malaysian Government Securities futures. • MDEX is a member of Bursa Malaysia Group of companies. • Regulated under Futures Industry Act 1993

  11. The Clearing House and The Central Depository System • After execution, a trade to buy or sell securities is not completed until the transaction goes through clearing and settlement. This is when the clearing houses takes over to process and settle the trade. • Clearing is the process of determining accountability for the exchange of money and securities between the counter parties of a trade. • Settlement refers to the payment and receipt of money for the securities, and the delivery and receipt of securities.

  12. The Clearing House and The Central Depository System • Three types: • Securities Clearing Automated Network Services (SCANS) • The central clearing house for the KLSE • Malaysian Derivatives Clearing House (MDCH) • The clearing house for MDEX. • Malaysian Central Depository (MCD) • Set up in 1990 , empowered under Securities Act (Central Depositories 1991) to operate CDS for scripless trading

  13. The Intermediaries • Middlemen between investors and exchanges, the conduit for chaneling investor’s funds into the exchanges. • Types: • Broking houses • Stockbrokers • Futures brokers • Bond dealers • Fund Managers • Trading/investment advisors

  14. Service Providers • Institution that supply professional and technical services to the capital market participants. • Types: • Issuing Houses • MIDF – regulated by Securities Commission • The Malaysian Share Registration Services • Operated by MCD • Rating Agencies • To provide unbiased credit ratings of bonds issued by private debt securities (PDS). • RAM (1990) and MARC (1996)

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