Speech at Financial Market RPT Conference

Ladies & gentlemen and friends of the media, a very Good morning to all of you!

First of all, I would like to thank CFA Malaysia for giving me the honor to deliver the opening speech. From my understanding, CFA Malaysia is a member society of the CFA Institute. CFA Malaysia is a young and vibrant society with 400 members. Its members consist of investment bankers, portfolio managers, security analysts, investment advisors, and other financial professionals.

This morning, I am pleased to see that CFA Malaysia is taking the initiative and the lead to promote the Malaysia stock market by providing the participants with a better understanding of the Related Party Transactions, or known as the RPT regulatory framework in Malaysia, as well as to examine some cases in the overseas market.

Quoting what our Prime Minster, YAB Dato Sri Mohd Najib Tun Razak said: “There can be no fully developed Malaysia until we have finally overcome the nine central strategic challenges that have confronted us from the moment of our birth as an independent nation.”

And of the nine central strategic challenges, one of them is “the challenge of establishing a prosperous society, with an economy that is fully competitive, dynamic, robust and resilient.”

A resilient and competitive economy will also hinge on the efficient functioning of the banking and capital markets to help facilitate fund-raising and investments and ensure a strong investor confidence in the economy.

In order to build up a robust stock market, investor confidence, both from the local and foreign, there is a need to be firmly established a good regulatory framework that will provide adequate protection to investors without being unnecessarily restrictive and stifling. All directors of the listed companies should be fully aware of their role as stewards in protecting shareholders’ interest and creating shareholder value, in particular the interests of the minority shareholders.

In this respect, Related Party Transaction or RPT, is one of the areas that one needs to pay special attention to. The nature of some listed companies, especially in the Asian model, where a substantial stake may be in the hands of a controlling or major shareholder such as the entrepreneur who founded the company or the state, continue to make RPT an area of focus for regulators. Not all RPTs, of course, are cause for concern, only those which are regarded as “abusive” where minority shareholders and investors alike may be taken advantage of to their detriment and often the detriment of the company itself.

In my view, there are 3 major issues to pay attention to in an RPT, these include if the corporate proposal comprises proper and profitable business activities for the acquiring company to be participating in, does the company have any viable alternative in whom they are proposing to transact with and if they have all the pertinent information been properly disclosed to enable informed decision making by the shareholders?

In this regard, it is heartening to note that Bursa Malaysia has put in place a robust regulatory framework to govern RPTs that is in line with the recommendations made in the Guide on Fighting Abusive Related Party Transactions in Asia, issued by the OECD in September 2009. Bursa has been also vigilant in enforcing its rules on RPTs. While a sound regulatory framework coupled with stringent enforcement is essential to safeguard investors’ interests, it is the directors themselves who can make a difference to curb abusive RPTs. This is where the independent directors must stand up and be counted. They should serve as effective watchdogs against RPTs that are not in the best interests of the company. They must ask those difficult questions of the board of directors, including those that I have earlier posed.

For today’s conference, two of the CFA guest speakers will focus on to shed some light on some of these issues.

Thirdly, Malaysia needs to build and amass its human capital quickly the economy growth and put Malaysia on par with the developed nations. The government views the need for a strong human capital development to take on the new challenges as we move into a more knowledge-based economy.

Take an example of our neighboring country, Singapore. It has 5 million populations and CFA Singapore has more than 2,300 members. But if we look at Malaysia, with a population or more than 27 million, 5 times more than the size of Singapore, we only have about 400 members who registered with CFA Malaysia. This is only about 17% of the size compare to CFA Singapore! This certainly does not work in the favour of the country in propelling itself in the capital arena.

I hope that CFA Malaysia and others financial professional societies, will continue to put extra effort to assist the government and to shoulder the responsibility in fostering and nurturing our local young Malaysian professionals and together we place Malaysia in global investors’ map.

For the media, my message to you is, it is the government aim, to develop a fair, just and transparent capital market, and we need you, as a financial journalist, to play the impartial role to disseminate the correct information, to educate and protect the investors and to promote the country’s capital market.

Putting all together, in the 1Malaysia spirit, we are confident we can achieve our national goal to be a developed nation by 2020.

Thank you.