From left: SC Co-Managing Director Datuk Kamarudin Hashim, SC Chairman Datuk Seri Dr Awang Adek Hussin and SC Co-Managing Director Datin Azalina Adham at a news conference. The Annual Report will provide a comprehensive review of the Malaysian capital market for 2023 and outline strategic priorities for the SC and the overall capital market for 2024. —AZLINA ABDULLAH/The Star
KUALA LUMPUR: The Securities Commission (SC) has entered into talks with the Finance Ministry (MoF) to review its revenue model for improved financial sustainability in the future.
This comes as the SC saw its deficit after tax widening by almost three-fold year-on-year (y-o-y) for the financial period ended Dec 31 to RM71.3mil, with chairman Datuk Seri Awang Adek Hussin remarking that the situation cannot be allowed to continue.
The intention to revise its revenue model coincides with the drop in average trading volume on Bursa Malaysia over the past two years to approximately RM2bil to RM2.1bil a day.
With a change in the operating environment, Awang Adek said the regulatory body needs a better model to guarantee its financial sustainability going forward.
“This is our survival. If the current situation continues for long, we will not survive,” he told a press conference at the SC Annual Report 2023 briefing here yesterday, referring to the current trading fees and duty structure.
Moreover, he said the last review of the SC’s revenue model was carried out about 30 years ago.
Of note, Awang Adek pointed out that the regulatory body would be able to break even if trading volume were to increase up to RM2.6bil daily or more, and revealed that the year-to-date average of RM3bil so far has beefed up hopes that the SC will return to profitability in 2024.
“We are now less than three months into the year, but if the year-to-date momentum can keep up, we should be able to record a healthy surplus this year.
“In the meantime, investment banks are paying us a licensing fee of RM2,000 a year.
“The background is that we wanted to develop the market back then, and we were not so concerned about charging fees at the time,” he revealed.
While emphasising that the SC is not overly worried, he nevertheless said it has recognised the situation and is doing something about it.
Awang Adek reported that talks with the MoF were still in preliminary stages, but noted that the government has been receptive to the SC’s proposals.
“We must now consult with our stakeholders to ensure they can accept this amicably, as nobody wants to see the fees go up,” he said.
More importantly, he added that parties involved in the discussion include not only Bursa Malaysia, but also the investment industry as a whole to ensure an effective solution can be found.
The revenue structure revamp is all the more essential as the SC chairman said duties imposed on trading in the market constitute 90% of its turnover, which is shared between Bursa Malaysia and itself, albeit with Bursa Malaysia having a larger share.
Awang Adek began his presentation yesterday by saying that the Malaysian capital market had displayed resilience throughout 2023 with a 5.6% y-o-y growth to RM3.8 trillion, which is underpinned by an expansion on total equity market capitalisation as well as bonds and sukuk outstanding.
Despite stopping short of providing a growth forecast for 2024, he is of the opinion that market sentiment is even better this year, predicting that the number of initial public offerings (IPOs) on Bursa Malaysia will increase to 40 from the 33 new listings last year.
However, he observed that although liquidity in domestic equities continued to be supported by local institutions, foreign holdings in shares had declined in 2023, as opposed to external bond holdings which had seen a marginal increase.
Awang Adek speculated that it could be an issue of portfolio management, with foreign investors perhaps having perceived better opportunities in Malaysian bonds compared to equities.
Separately, he said the SC and the MoF were also discussing with “greater intensity” regarding the finalisation of regulatory frameworks for the setting up of family offices in Malaysia.
A family office is a privately held company that handles investment or wealth management for a wealthy family, generally one with at least US$50mil to US$100mil in investable assets, usually with the goal of effective wealth transfer between generations.
Awang Adek believes the government would be able to make an announcement on the matter in the next budget tabling, adding that things were looking positive at the moment and it would be healthy for Malaysia’s investment climate to attract the setting up of more family offices.
“We are working on a framework at the moment, which includes tax rates to be imposed possibly, but it is most important to see what would be announced at the budget,” he said.
Elsewhere, he said among the SC’s focus for this year include ensuring regulatory effectiveness to combat money laundering and terrorist financing, the continued implementation of the Focus Scope Assessment and expedition of IPO approvals, on top of widening investor protection.
Additionally, he said the SC will also continue to provide more micro and small or medium enterprises (MSMEs) as well as mid-tier companies with access to private and public market fundraising opportunities through its upcoming Five-Year MSME Roadmap.
