Revamping KLSE operations critical

  • Business
  • Thursday, 04 Sep 2003

From the KLSE 

THE stability and performance of our equity market directly impacts on the economic strength of the nation. For investors, the stock market provides an important component of their savings portfolio. Most citizens have their future well-being and prosperity linked to the stock market, through funds such as the EPF, PNB Funds (e.g., ASN, ASB, ASW), and insurance funds, if not through direct share investments.  

For companies, the stock market provides an important source of capital for growth that is more cost-effective than having to rely on bank lending. For the economy, a functioning equity market reduces volatility of capital flows and provides greater capital diversification, and thus enhanced systemic stability. Therefore, to ensure continued growth and prosperity, it is important for our capital market to grow and improve its performance – measured in terms of size, liquidity, and cost efficiency. 

Advancements in technology, increasing sophistication of capital market participants, and deregulation of capital markets globally are forcing stock exchanges around the world to change their operating models. No longer can they expect to have investors and issuers coming to their doors.  

Stock exchanges must now learn to compete for investors who now have greater choice and mobility. They must battle to attract and retain the liquidity pool in their markets. They must make better use of technology to improve their performance and better manage the large fixed cost base of their IT systems. They must also upgrade their skills to better serve their clients and introduce more innovative products for them. In short, status quo is not an option for any exchange. 

Given these competitive pressures facing exchanges, it is critical for the KLSE to restructure its businesses and operations to continue to meet the demands of its clients. Demutualisation is one of the means to enable the KLSE to achieve this. It is a key milestone in the implementation of the first phase of the Capital Market Masterplan, developed by the Securities Commission to chart a clear long-term direction for the industry. 

Technically, demutualisation refers to the process of converting the KLSE from its present non-profit mutual structure with stockbroking companies as its members, into a commercially-driven corporation structure, limited by shares.  

Demutualisation will widen participation in the KLSE’s governance beyond the current stockbrokers and government appointees. It separates shareholding in the exchange from trading access. It also allows the KLSE the flexibility to go for a public listing, which provides future capital flexibility and growth currency. 

More importantly, it provides the impetus to implement a series of business and organisational changes to transform the KLSE into a more professionally managed, customer-oriented and efficient organisation that is more transparent and accountable for its performance to its shareholders and the investing public. 

Part One

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