Malaysia's financial sector is regarded as highly diversified and among the more advanced in East Asia. The World Bank's 2005 Report on the Observance of Standards and Codes (ROSC) found that important reforms have been implemented in Malaysia since the Asian financial crisis. Key reforms include the formulation by the Securities Commission (SC) of a ten-year Capital Market Master Plan (CMP) in 2001, and the demutualization of the Kuala Lumpur Stock Exchange. The World Bank's 2005 ROSC reported that one of the key weaknesses that surfaced following the 1997 financial crisis was the overlapping authority of the regulatory institutions governing the securities market. Pursuant to the Securities Commission Act No 498 of 1993, while the SC is the sole regulator for the corporate bond market, other authorities are still involved in regulating the capital market. In this regard, the World Bank recommended ensuring the independence of the regulator, and rationalizing the regulatory framework. These issues were intended to be addressed by the ten-year CMP and amendments to the Securities Commission Act. In September 2006, the SC released a self-assessment against the International Organization of Securities Commissions (IOSCO) Principles and Objectives of Securities regulation, which was undertaken in line with the IOSCO's 2003 methodology. The self-assessment indicated that Malaysia had adopted the principles into legislation and regulation, but did not assign actual levels of compliance for the individual IOSCO principles. A subsequent independent third-party assessment is being conducted in 2008 and is expected to be published by the end of the year.

General Overview

The World Bank's 2005 Report on the Observance of Standards and Codes (ROSC) found that important reforms had been implemented in Malaysia since 1998 to identify and address weaknesses highlighted by the Asian financial crisis. Key reforms included the formulation by the Securities Commission (SC) of a ten-year Capital Market Master Plan (CMP) in 2001, the conversion of the Kuala Lumpur Stock Exchange (KLSE) from a mutually-owned company to a shareholder-owned company, and the introduction of a Code on Corporate Governance in 2000, which was last revised in 2007. The KLSE was renamed Bursa Malaysia in 2004 following the demutualization. The regulatory infrastructure of Malaysia's capital market underwent major enhancements in the 1990s. The legal framework for securities regulation in Malaysia is based on the 1993 Securities Commission Act No 498, the 1983 Securities Industry Act No. 280, the 2003 Futures Industry (Amendment) Act, and the 1991 Securities Industry (Central Depositories) Act No. 453.

The SC was established under the Securities Commission Act No 498 of 1993 as the regulatory body for the securities market. Responsibilities of the SC include investor protection, and the development of the securities and futures markets in Malaysia. The enforcement powers of the SC have been enhanced since 1997, and it was given broad authority over companies seeking to issue or offer securities to the public. While the SC is the sole regulator for the corporate bond market, four other authorities are still involved in regulating the capital market, including the Central Bank of Malaysia (BNM), the Companies Commission of Malaysia (CCM), the Foreign Investment Committee (FIC), and the Ministry of International Trade and Industry (MITI). Consequently, the World Bank's 2005 ROSC reported that one of the key weaknesses that surfaced following the 1997 financial crisis was the overlapping authority and resulting ambiguous accountability of the regulatory institutions governing the securities market. In this regard, the World Bank recommended ensuring the independence of the regulator, and rationalizing the regulatory framework to avoid ambiguities regarding the responsibilities of regulatory institutions. There was also a need to modernize the regulator's range of monitoring and regulatory enforcement powers. These problems were intended to be addressed by the ten-year CMP and amendments to the Securities Commission Act.

The CMP was developed by the SC in 2001 to set the framework for the long-term development of the market and provide clarity for issuers, investors, and intermediaries. The CMP contains 152 recommendations dealing with the development of the institutional and regulatory framework for the capital market from 2001 to 2010. The World Bank's 2005 ROSC noted that these recommendations were credible, and that, once fully implemented, would further improve the capital market in Malaysia. At end of December 2007, as stated on the SC's website, 129 recommendations (85%) of the CMP were completed, with the remaining 23 (15%) still in progress. According to a 2007 study by Tham Siew Yean and Kwek Kian Teng, Malaysia undertook the second phase of its ten-year CMP, which involved the liberalization of stockbroking and investment management, removal of structural impediments to market access, greater secondary-market liquidity and international participation in the domestic capital market, and deregulation.

In September 2006, the SC released a self assessment against the International Organization of Securities Commissions (IOSCO) Principles and Objectives of Securities regulation. The self-assessment was undertaken in line with the IOSCO's 2003 methodology for assessing implementation of the IOSCO Principles. The self-assessment indicated that Malaysia had adopted the principles into legislation and regulation, but did not assign actual levels of compliance for the individual IOSCO principles. A subsequent independent third-party assessment is being conducted in 2008 and is expected to be published by the end of the year.

As noted on its website, the Bursa Malaysia is an exchange holding company, which operates a fully-integrated exchange, offering the complete range of exchange-related services including trading, clearing, settlement and depository services. Companies are either listed on the Bursa Malaysia's Main Board for larger capitalized companies, the Second Board for medium sized companies, or the MESDAQ Market for high growth and technology companies. The conversion of the Bursa Malaysia from a mutually-owned company to a shareholder-owned company took place on April 14, 2004. Established in 1995, the Kuala Lumpur Options and Financial Futures Exchange offers equity derivative products based on underlying instruments traded on the Bursa Malaysia. The World Bank's 2005 ROSC underlined the government's high level of equity ownership, and the weak amount of public company shares available to investors (free float). As at December 2004, per the same report, there were approximately 40 government-linked corporations, with a combined market value of approximately USD 71 billion, accounting for 32 percent of the Bursa Malaysia's market capitalization.

In September 2007, according to the U.S. Department of Commerce (DoC) 2008 Country Commercial Guide, the government of Malaysia announced its intention to allow the establishment of wholly foreign-owned Islamic fund management companies, which would be permitted to invest all of their assets abroad, as part of its strategy to make Malaysia a global hub for Islamic financial services. In addition, the BNM and the SC signed three memoranda of understanding (MoUs) with the aim of enhancing cooperation in the joint surveillance of the capital market, strengthening the corporate governance framework for public listed companies, and developing Malaysia as an international Islamic financial center. Per the same report, Labuan, Malaysia, was established as an offshore financial center, where businesses receive preferential tax treatment for offshore banking activities, trust and fund management, offshore insurance and offshore insurance-related businesses, and offshore investment holding businesses.

The IOSCO multilateral memorandum of understanding (MMoU) adopted in 2002 is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The SC is a signatory to the MMoU and an ordinary member of IOSCO.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

The 2006 self-assessment found that the SC's powers, as the capital market regulator in Malaysia, were clearly defined under the Securities Commission Act. Specific provisions in the securities laws set out various aspects of the SC's powers in its oversight and regulation of the capital market and enforcement measures. Per the same report, the SC is the sole authority responsible for regulating companies and financial services, and promoting investor protection in Malaysia. It is also subject to judicial review where it is considered to be acting beyond its legal powers. Effective channels of communication and cooperation are in place with other regulatory authorities, including the BNM, the Labuan Offshore Financial Services Authority, the CCM, and the Royal Malaysia Police (RMP). While the SC is the sole regulator for the corporate bond market, four other authorities are still involved in regulating the capital market, including the BNM, the CCM, the FIC, and the MITI. In this regard, the World Bank's 2005 ROSC recommended rationalizing the regulatory framework to avoid ambiguities regarding the responsibilities of regulatory institutions. This issue was intended to be addressed by the ten-year CMP and amendments to the Securities Commission Act. However, the self-assessment does not assign a clear level of compliance to this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

The 2006 self-assessment found that the SC, as the capital market regulator in Malaysia, had a clear mandate under the law to undertake its day-to-day functions without political or commercial interference. The Securities Commission Act sets out specific requirements relating to the appointments and powers of the SC and its Board. Under the securities laws, the SC is accountable to both the Minister of Finance (MoF) and Parliament. The terms of appointment regarding tenure, resignation, revocation and vacation of office are also clearly set out in the law. Additionally, the conduct of SC's day-to-day functions such as corporate submission approvals, licensing reviews and recommendations, monitoring and surveillance of markets and intermediaries are determined through procedures and guidelines. Regarding the funding of the SC's operations, the self-assessment noted that the SC had a stable and continuous source of funding through the imposition of levies on securities transactions, as well as fees and charges for approvals and other processing functions. In terms of legal protection for supervisors, the SC and its staff are protected under the Securities Commission Act when performing their duties. While the SC is the sole regulator for the corporate bond market, four other authorities are still involved in regulating the capital market, including the BNM, the CCM, the FIC, and the MITI. In this regard, the World Bank's 2005 ROSC recommended ensuring the independence of the regulator. This issue was intended to be addressed by the ten-year CMP and amendments to the Securities Commission Act. However, the self-assessment does not assign a clear level of compliance to this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

The 2006 self-assessment found that the SC had wide powers in the area of licensing, supervision, inspection, investigation, and enforcement to carry out the functions entrusted to it under the law. Legislation is also reviewed on a continuous basis, and where necessary, amended to ensure that the SC continues to have adequate powers to effectively discharge its functions. The SC reported that it was self-funded and had accumulated sufficient reserves to carry out its regulatory and supervisory functions. Significant emphasis had also been placed by the SC on training its staff. However, the self-assessment does not assign a clear level of compliance to this principle.

4. The regulator should adopt clear and consistent regulatory processes.

II

The 2006 self-assessment found that the SC had clearly established processes and criteria for the exercise and discharge of its powers. These processes may include formal and informal consultations, the circulation of consultation papers, publication of exposure drafts for public consultation, and the issuance of press releases. Additionally, the SC sets out a detailed report of its activities and key policy developments and decisions made during the year in its Annual Report. Securities laws and regulations, including guidelines, codes and practice notes may be accessed by the public through the SC's website. Per the same report, decisions of the SC are subject to judicial review. However, the self-assessment does not assign a clear level of compliance to this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

According to the 2006 self-assessment, the staff of the SC were required to observe a Code of Conduct relating to the avoidance of conflict of interest, restrictions in investing in securities, and observance of confidentiality. In this regard, internal disciplinary procedures and guidelines for investigating and resolving alleged violations of the Code of Conduct were established by the SC. Secrecy obligations are also provided under the Securities Commission Act. However, the self-assessment does not assign a clear level of compliance to this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

With regards to the regulation and surveillance of the securities market in Malaysia, the 2006 self-assessment found that the Bursa Malaysia was vested with regulatory powers under the law, and had statutory responsibility to ensure a fair and orderly market and prudent risk management. Furthermore, the Bursa Malaysia had the authority to sanction, expel or suspend its participating organizations, as well as any persons acting on behalf of the participating organizations. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

The 2006 self-assessment found that the Bursa Malaysia had all necessary requirements to carry out its functions. Furthermore, the Bursa Malaysia was empowered to set its own rules, subject to approval by the SC. Regarding oversight of the exchange, the SC conducted ongoing monitoring of the activities of the Bursa Malaysia, and could perform a regulatory audit on the exchange based on the annual regulatory report. The self-assessment reported that the Securities Industry Act provided the MOF, upon the recommendation of the SC, with the authority to approve a stock exchange, and to amend, revoke or impose new terms and conditions on the exchange. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

The 2006 self-assessment reported that the SC had the power to supervise and monitor the activities of the exchange in the performance of its functions. Furthermore, the SC had powers under the securities laws to inspect a regulated entity's operations, including its books and records. The World Bank's 2005 ROSC noted that there was a need to modernize the regulator's range of monitoring and regulatory enforcement powers. These problems were intended to be addressed by the ten-year CMP and amendments to the Securities Commission Act. However, the self-assessment does not assign a clear level of compliance to this principle.

9. The regulator should have comprehensive enforcement powers.

II

According to the 2006 self-assessment, the SC is the main enforcement agency to ensure compliance with the laws and regulations relating to securities activities. Other relevant enforcement agencies include the CCM and the RMP. The self-assessment noted that the SC had powers to initiate criminal prosecution with the written consent of the Public Prosecutor; to seek orders from the High Court to ensure compliance with regulatory requirements; to institute civil actions for breaches of securities laws; and to take administrative actions against the exchange, central depository, licensed persons, directors and officers of licensed persons for a breach of law, regulations and rules of the exchanges and central depository. In addition, the SC had wide investigative powers to require documents, records and to compel any person involved in alleged breach of securities laws. The World Bank's 2005 ROSC noted that there was a need to modernize the regulator's range of monitoring and regulatory enforcement powers. These problems were intended to be addressed by the ten-year CMP and amendments to the Securities Commission Act. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

According to the 2006 self-assessment, both the SC and Bursa Malaysia had inspection and surveillance functions. The Bursa Malaysia conducted routine inspections on stockbroking companies and futures broking companies, whereas periodic inspection on asset management companies, unit trust management companies and investment advisory companies were carried out by the SC. The Bursa Malaysia also conducted surveillance of securities and futures markets operated by its subsidiary exchanges on a real time basis. Per the same report, the SC had a dedicated Complaints Department to receive and respond to investor complaints regarding improper conduct and other irregularities in the securities and futures markets. However, the self-assessment does not assign a clear level of compliance to this principle.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

II

The 2006 self-assessment found that the SC generally had the authority to share information with other domestic regulators and authorities. Upon a written request from a foreign supervisory authority, the SC may provide assistance and share information with foreign counterparts even if the alleged conduct under investigation by the foreign authority is not such that would constitute a breach of law in Malaysia. The Securities Commission Act, in spite of the secrecy provisions, permits the provision of information for the purposes of civil or criminal proceedings. However, the self-assessment does not assign a clear level of compliance to this principle.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

II

The 2006 self-assessment reported that the SC had entered into information-sharing arrangements with other domestic as well as foreign authorities. At the domestic level, the SC has signed MoUs with the CCM and the RMP, and has formed a High Level Committee to foster closer cooperation between the three authorities. The SC has also signed MoUs with the BNM, and holds regular bilateral meetings. As at November 2006, per the same report, the SC had entered into 24 MoUs with its foreign regulatory counterparts. The SC is also a signatory to the IOSCO MMoU, and an ordinary member of IOSCO. The IOSCO MMoU adopted in 2002 is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

II

According to the 2006 self-assessment, the SC had broad powers to provide assistance to foreign regulators. The Securities Commission Act provides that the SC may use its full range of enforcement powers in carrying out investigations to assist the requesting foreign regulator, as if the breach of the legal or regulatory requirement were an offence under Malaysian securities law. However, the self-assessment does not assign a clear level of compliance to this principle.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

The 2006 self-assessment reported that issuers were required to make full, timely and accurate disclosure of information to the public under the securities laws, and guidelines issued by the SC. In the wake of the Asian financial crisis, Malaysia took steps to improve accounting transparency and corporate governance, according to the U.S. DoC 2008 report. The Bursa Malaysia requires quarterly reporting of unaudited accounts, and issuance of annual audited accounts and reports for public scrutiny. In addition to the audited financial statements, per the World Bank's 2005 ROSC, companies are required under the Listing Requirements and the Companies Act to disclose in their annual reports the names and interests of major shareholders and directors, as well as the number of holders of each class of equity securities with their voting rights. The World Bank stated in its report that the framework, under which external auditors operate in Malaysia, could be further improved by strengthening the relationship between external auditors and audit committees. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

EN

According to the World Bank's 2005 ROSC, the equal rights of shareholders of different classes of shares are provided under the Companies Act. The World Bank further states that while related-party transactions involving the directors of listed companies are regulated by the Listing Requirements, the sole reliance on Listing Rules to regulate related-party transactions may not be sufficient. In this view, the Companies Act should be amended to require interested parties to abstain from voting on a related-party transaction. Regarding the breach of legal provisions with respect to related-party transaction, sanctions should be reviewed and substantially increased, in line with penalties for insider trading violations. There is also a need to improve the quality of enforcement actions taken for breach of the provisions on related-party transactions. Per the 2006 self-assessment, the Companies Act provides for the rights and treatment of shareholders, including rules and procedures on voting, notice of shareholder meetings, proxy voting, ownership registration and receipt of dividends and other distributions. Moreover, the Corporate Governance Code requires the Board of Directors to act in the interest of shareholders and protect minority shareholder rights.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

II

According to a regulatory and standard-setting framework assessment published by the Malaysian Institute of Certified Public Accountants in February 2005, all companies incorporated under the Companies Act are required to prepare financial statements in accordance with approved accounting standards issued by the Malaysian Accounting Standards Board (MASB). The MASB was established under the Financial Reporting Act No. 558 of 1997. Per the same report, all listed companies are required under the Listing Requirements of the Bursa Malaysia to submit their annual audited financial statements, and quarterly reports to the Exchange for public release. The Securities Industry Act No. 280 of 1983 also requires listed companies to submit their audited annual financial statements, as well as interim and periodic financial reports, to the SC. The Listing Requirements of the Bursa Malaysia further provide that all listed companies appoint an audit committee. Per the October 2006 update available from the Deloitte & Touche IAS Plus website, the MASB announced that Malaysia's newly revised Financial Reporting Standards were generally consistent with the International Financial Reporting Standards issued by the International Accounting Standards Board, and would take effect as of January 1, 2007. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

The 2006 self-assessment reported that the Securities Commission Act provides that only a unit trust management company (UTMC) is allowed to market a collective investment scheme (CIS), with prior approval by the SC. The UTMC is required to comply with the SC's Guidelines on Marketing & Distribution of Unit Trust Funds. Furthermore, the approved UTMC must ensure that all persons involved in the marketing and distribution of unit trusts are authorized and registered by the Federation of Malaysian Unit Trust Managers. The 2006 self-assessment further noted that the SC monitored UTMCs, and had clear powers with respect to remedial action. However, the self-assessment does not assign a clear level of compliance to this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

The 2006 self-assessment stated that the UTMCs administered and managed the unit trust fund, whereas the trustee - the registered owner of the trust - monitored the conduct of the management company and ensured that the interests of investors were safeguarded. The trust mechanism ensured that the CIS assets were segregated and kept in the custody of the trustee. A unit trust fund is audited annually. However, the self-assessment does not assign a clear level of compliance to this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

According to the 2006 self-assessment, the SC required that all matters material to the evaluation of a CIS, and the value of an investor's interest be disclosed in the interim and annual reports. For the purpose of evaluating the suitability of the CIS, pursuant to the Securities Commission Act, issuers were required to disclose information in the prospectus. The contents of the prospectus are detailed under the Prospectus Guidelines for Unit Trust Funds, which requires that offering documents include, inter alia, information on the operator and the rights of investors, the methodology for asset valuation, procedures for purchase, redemption and pricing of units, relevant audited financial information, information on the custodian, and investment policies. The new Prospectus Guidelines for CIS were enacted in January 2008. However, the self-assessment does not assign a clear level of compliance to this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

The 2006 self-assessment reported that the regulatory framework required that the property of a CIS be fairly and accurately valued, and the net asset value (NAV) be correctly calculated on a daily basis. The NAV must be calculated based on approved calculations of accounting standards issued by the MASB and the valuation basis provided in the Guidelines for Unit Trust Funds. However, the self-assessment does not assign a clear level of compliance to this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

The 2006 self-assessment noted that all market intermediaries must be licensed by the SC in order to carry out the permitted activities under the Securities Industry Act and the Futures Industry Act. Minimum entry standards, including initial capital requirements, are applied equally and consistently to applicants applying for the same category of licenses. Furthermore, all license applicants must meet fit and proper criteria. The SC is empowered by law to refuse an application for a license, subject to administrative and judicial review, and to revoke, suspend or impose conditions on a license while it is in force. According to the 2006 self-assessment, the Bursa Malaysia conducted routine inspections on stockbroking companies and futures broking companies, whereas periodic inspection on asset management companies, unit trust management companies and investment advisory companies were carried out by the SC. However, the self-assessment does not assign a clear level of compliance to this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

The 2006 self-assessment reported that all licensed intermediaries were required to have initial capital requirements under the relevant Guidelines of the SC and Bursa Malaysia Rules. The capital adequacy requirements take into account the risks undertaken by an intermediary, including operational risk, counterparty risk, position risk, large exposure risk, and underwriting risk. However, the self-assessment does not assign a clear level of compliance to this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

The 2006 self-assessment reported that all intermediaries were required to have appropriate management and organizational structure, including a clear line of responsibility, proper check and balance, and segregation of functions. Furthermore, appropriate supervisory and compliance functions to ensure compliance with the relevant rules and laws were required. The self-assessment noted that the final responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures lied with senior management and the Board of Directors, as stipulated by the relevant Guidelines of the SC and Bursa Malaysia Rules. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

FC

According to the 2006 self-assessment, the SC had established a crisis management action plan which detailed the steps to be taken, inter alia, in the situation of the failure of a market intermediary. In addition, the provisions contained in the Securities Industry Act empowered the SC to take a series of regulatory actions, including restricting and suspending operations, where the intermediary's financial position showed a high risk of failure. Similarly, the 2006 self-assessment stated that the Bursa Malaysia Rules enabled the Exchange to take a range of actions against a defaulting intermediary, such as trading restrictions. Any default by a participant and any subsequent action taken by the Bursa Malaysia must be notified to the SC. However, the self-assessment does not assign a clear level of compliance to this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

The 2006 self-assessment reported that the establishment of a stock exchange and futures market of an exchange company required the prior approval of the MoF, upon recommendation of the SC. Applicants are required to meet criteria, set out in the Securities Industry Act and the Futures Industry Act, which are assessed by the SC prior to making a recommendation to the MoF. The SC approves all rules and amendments to the Bursa Malaysia rules, as well as all securities and derivatives products admitted to listing and trading. However, the self-assessment does not assign a clear level of compliance to this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

The 2006 self-assessment reported that the Bursa Malaysia was entrusted with the daily and real-time surveillance of activities in the securities and futures markets, as well as the day-today monitoring of equity and derivatives brokers. The Bursa Malaysia was further required to report to SC immediately upon detection of any irregular activities, and take necessary actions against market participants for breach of the Bursa Malaysia rules. Similarly, the Securities Industry Act empowered the SC or the MOF upon recommendation of the SC, to either impose administrative sanctions on an exchange or withdraw the approval of an exchange. The Futures Industry Act provided similar powers to the SC in relation to the derivatives market. However, the self-assessment does not assign a clear level of compliance to this principle.

27. Regulation should promote transparency of trading.

II

The 2006 self-assessment noted that the Bursa Malaysia provided pre-trade and post-trade information via its MASA hardware system. Furthermore, the Bond Information and Dissemination System ensured transparency with regards to information on bonds issued. Per the same report, all transactions at the Bursa Malaysia consisted of real-time trades with the trade information disseminated on a real-time basis. However, the self-assessment does not assign a clear level of compliance to this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

The 2006 self-assessment noted that the SC enforced legislation through administrative, civil and criminal actions. The Securities Industry Act and the Futures Industry Act prohibit price manipulation, insider trading, front running and other deceptive or misleading conduct. The Bursa Malaysia was required to report to the SC whenever it detected any violation of securities laws or the Anti-Money Laundering and Anti-Terrorism Financing Act No. 613 of 2001. In addition to halting or suspending trading, the SC was empowered under the Securities Industry Act to prohibit trading in particular securities. However, the self-assessment does not assign a clear level of compliance to this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

The 2006 self-assessment reported that the provisions on large exposures' risk were prescribed under the Bursa Malaysia rules on capital adequacy requirements, and accounting requirements. The Bursa Malaysia rules on prudential requirements also provide a limit in terms of maximum exposure of the stockbroking companies. The self-assessment further noted that the Bursa Malaysia had access to information on the size and beneficial ownership of positions held by customers via the Central Depository System account structure. However, the self-assessment does not assign a clear level of compliance to this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

II

According to the 2006 self-assessment, the role of the SC in terms of regulatory oversight and authorization of securities settlement systems is defined under the Securities Commission Act. System operators in Malaysia, including the central depository, the derivatives clearing house, and the securities clearing house, must be approved by the MoF, upon recommendation of the SC, under the relevant securities laws. The rules of the system operators require the SC's approval. Furthermore, any amendments to the business rules or by-laws of the authorized clearing house are subject to the approval of the SC. All the relevant laws governing clearing and settlement of trading in securities and exchange-traded derivatives in Malaysia are publicly available and are accessible on the SC website. The 2006 self-assessment reported that the clearing house used several clearing banks as settlement agents to diversify the concentration of risks. Payment flows were generally evenly distributed between the settlement banks. It was further noted that the clearing house and depository had established processes to identify, monitor and manage risks. In addition, internal audits of the operational system, and external audits of the IT system, were also conducted. Nevertheless, the self-assessment does not assign a clear level of compliance to this principle.