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Bursa Malaysia seeks feedback on transfer from LEAP Market and new category of Recognised Approved Adviser

15 August 2022

On 10 August 2022, Bursa Malaysia Securities Berhad (‘the Exchange’) issued a Consultation Paper No. 2/2022 to seek public feedback on the proposed amendments to the ACE Market Listing Requirements (‘ACE LR’) to introduce the following: 
  • a framework for the transfer of the listing status of a listed corporation from the LEAP Market (‘LEAP Market’) to the ACE Market (‘ACE Market’) of the Exchange (‘Proposed LEAP Market Transfer Framework’); and 
  • a recognised approved adviser framework (‘Proposed Recognised Approved Adviser Framework’).1 
The Proposed LEAP Market Transfer Framework
 
Rationale
 
The LEAP Market was launched by the Exchange on 25 July 2017 to provide emerging companies, such as small and medium-sized enterprises, with greater access to fund raising through the capital market. The LEAP Market is a qualified market that is accessible only to sophisticated investors2. On the other hand, the ACE Market is targeted at corporations with good business prospects, and is accessible to public and retail investors. Due to these differences, the requirements under the LEAP Market Listing Requirements (‘LEAP LR’) are significantly less extensive as compared to the ACE LR.
 
The ACE LR does not presently have a framework to enable eligible LEAP Market listed corporations to transfer their listing status to the ACE Market to gain access to a larger pool of investors for their funding needs. Thus, the Proposed LEAP Market Transfer Framework will provide a structure to fill this void.
 
Conditions for transfer
 
Under the Proposed LEAP Market Transfer Framework, a LEAP Market listed corporation seeking to transfer its listing to the ACE Market (‘transfer applicant’) must: 
  1. meet the suitability assessment by a Sponsor3 under the ACE LR and have been listed on the LEAP Market for at least two years; 

  2. have completed its business plan as well as fully utilised the proceeds raised from its listing on the LEAP Market (based on its information memorandum or as approved by its shareholders after its listing on the LEAP Market); 

  3. make a concurrent application for transfer of listing to the ACE Market and withdrawal of its listing from the LEAP Market; 

  4. comply with the existing requirements and procedures for admission to the ACE Market, including the requirements relating to contents and registration of prospectus; and 

  5. put in place a clear price discovery mechanism for the shares to be transferred to the ACE Market. 
Additional points of interest
 
The Sponsor of the transfer applicant must undertake a pre-admission consultation with the Exchange before submitting the transfer application.
 
The transfer applicant is required to obtain the approval of its shareholders in a general meeting for the proposed transfer of listing.
 
The proposed transfer of listing may include an exit offer to enable the sophisticated investors to exit from LEAP Market in a fair and reasonable manner if they do not wish to continue participating in the ACE Market pursuant to the transfer of listing.
 
The additional requirements that a transfer applicant has to comply with in relation to the proposed transfer of listing from the LEAP Market to the ACE Market are set out in the new Guidance Note 15A and Annexure GN15A-A of the ACE LR.
 
The Proposed Recognised Approved Adviser Framework
 
Rationale
 
The Exchange proposes to introduce a new Recognised Approved Adviser Framework which permits an eligible Approved Adviser4 to serve as a replacement Sponsor for an ACE Market listed corporation. The primary role of a Recognised Approved Adviser is to guide the ACE Market listed corporation and its directors on their post listing obligations and to ensure compliance with the ACE LR and other applicable laws. According to the Exchange, the exposure obtained by an eligible Approved Adviser whilst acting as a replacement Sponsor in the ACE Market would enhance its competency and exposure to the ACE Market and enhance capacity building amongst professionals in the corporate finance fraternity.
 
Admission as a Recognised Approved Adviser
 
An Approved Adviser seeking to be a Recognised Approved Adviser must obtain the approval of the Exchange for its admission to the Register of Recognised Approved Adviser and comply with the following: 
  1. have acted as a financial adviser for at least two transfers of listing from the LEAP Market to the ACE Market; 

  2. have acted as an Approved Adviser for at least three initial listings on the LEAP Market; 

  3. have an Eligible Person5 who, in the seven years immediately preceding the date of application as a Recognised Approved Adviser, has been involved in: (i) at least two transfers of listing from the LEAP Market to the ACE Market; and (ii) at least three initial listings on the LEAP Market; 

  4. have satisfactory conduct and work record with no adverse record; 

  5. have no pending investigation or enforcement action initiated against it by the Exchange or the Securities Commission Malaysia (‘SC’); 

  6. provide the Exchange with an irrevocable and unconditional undertaking to comply with the provisions in the ACE LR that are applicable to it; and 

  7. satisfy such conditions as may be imposed by the Exchange. 
The Exchange retains the discretion whether or not to admit an Approved Adviser from the LEAP Market to the Register of Recognised Approved Adviser, and in doing so may impose such other conditions as it thinks fit,
 
Key roles of a Recognised Approved Adviser
 
A Recognised Approved Adviser may act as a replacement Sponsor for an ACE Market listed corporation after the first full financial year of the listed corporation’s admission to the ACE Market. The role of a Recognised Approved Adviser is to guide the ACE Market listed corporation and its directors for the remaining Sponsorship Period.6 However, a Recognised Approved Adviser is not allowed to act for an ACE Market listed corporation in corporate proposals that require the latter to appoint an Adviser under the ACE LR, such as proposals involving a new issue of securities under Chapter 6 of the ACE LR, and transactions under Chapter 10 of the ACE LR.
 
More specifically, the Exchange has proposed that the key roles of a replacement Sponsor be as follows: 
  1. maintain regular contact with the ACE Market listed corporation, including being available at all times to advise and guide the ACE Market listed corporation and its directors of their responsibilities and obligations, and to ensure their compliance on an on-going basis with the ACE LR and all relevant legislation and guidelines issued by regulatory authorities; 

  2. advise the ACE Market listed corporation on the appointment of a suitable accounting firm to meet the listed corporation’s audit obligations, valuers and other experts; 

  3. advise the ACE Market listed corporation if the trading of its listed securities will or should be halted or suspended; and 

  4. review any public document (other than those specifically excluded under the ACE LR) to be submitted or disclosed by the ACE Market listed corporation to the Exchange to ensure compliance by the ACE Market listed corporation. 
Responsibilities of a replacement Sponsor
 
As a Recognised Approved Adviser who is retained as a replacement Sponsor carries out most of the functions of a Sponsor (albeit from at least one full financial year after an ACE Market listed corporation has been admitted to the ACE Market), the Exchange has imposed many of the obligations applicable to a Sponsor under the ACE LR on a Recognised Approved Adviser who acts as a replacement Sponsor for an ACE Market listed corporation.
 
In carrying out its role as a replacement Sponsor discussed above, a Recognised Approved Adviser must:   
  1. observe and comply with the ACE LR and any other guidance note, instruction or directive issued or condition imposed by the Exchange; 

  2. act honestly, fairly and efficiently; 

  3. maintain the integrity of the market; 

  4. maintain and safeguard the confidentiality of records and information; 

  5. use due care and skill at all times when acting for, advising or guiding an ACE Market listed corporation; and 

  6. manage, avoid and resolve conflict of interest in relation to its role as a replacement Sponsor to an ACE Market listed corporation. 
On-going obligations of a Recognised Approved Adviser
 
In addition, the Exchange proposes that a Recognised Approved Adviser must comply with the following obligations on a continuing basis: 
  1. liaise with the Exchange on matters concerning the Sponsor’s responsibilities and other matters which should be brought to the Exchange’s attention; 

  2. have appropriate and adequate systems, procedures, policies and resources to discharge its obligations under the ACE LR; 

  3. maintain and retain sufficient record-keeping in respect of its activities as a replacement Sponsor; 

  4. co-operate and render every assistance to any investigation, enquiry or query conducted by the Exchange on any matter relating to the ACE LR; and 

  5. undertake an annual review of its sponsorship activities to determine the effectiveness of its role as a Recognised Approved Adviser and compliance with its obligations under the ACE LR. 
Resignation, termination and removal from the Register of Recognised Approved Adviser
 
The Exchange also proposes to apply the provisions of the ACE LR in relation to the resignation, termination or replacement of a Sponsor, the removal of a Sponsor from the Register of Sponsor and the cessation of sponsorship activities, to a Recognised Approved Adviser, with the necessary modifications.

Obligations of the ACE Market listed corporation in dealing with the Recognised Approved Adviser
 
An ACE Market listed corporation which engages a Recognised Approved Adviser is required to comply with the following requirements: 
  1. consult and seek the advice of the Recognised Approved Adviser on a timely basis when it contemplates a prescribed proposal or transaction; 

  2. take into account the advice given by the Recognised Approved Adviser in considering the proposal or transaction; 

  3. ensure that the Recognised Approved Adviser reviews the public document to be submitted or disclosed to the Exchange; and 

  4. provide all necessary and reasonable assistance to its Recognised Approved Adviser, including providing relevant information on a timely basis and access to information, books, records, personnel and premises, and ensuring that its directors, subsidiaries, employees or other relevant parties render assistance to the Recognised Approved Adviser. 
Performance review by the Exchange
 
As in the case of a Sponsor, the Exchange may review the performance or conduct of a Recognised Approved Adviser. If the Exchange considers that the Recognised Approved Adviser has not performed its duties satisfactorily, the Exchange may impose such conditions or requirements on the Recognised Approved Adviser or take any other action as the Exchange deems fit.
 
Deadline for comments
 
The deadline for interested parties to submit their comments and feedback to the Exchange is 21 September 2022.
 
Comments
 
Given that five years have passed since the launch of the LEAP Market, the Proposed LEAP Market Transfer Framework is timely as it is likely that some LEAP Market listed corporations may be or are on the threshold of being ready to move onto the ACE Market.
 
The Proposed Recognised Approved Adviser Framework is a welcomed step by the Exchange for capacity building amongst professionals in the corporate finance fraternity. By setting stringent conditions to be fulfilled by an Approved Adviser seeking admission to the Register of Recognised Approved Adviser, the Exchange will ensure that an Approved Adviser and the necessary experience and skillset to discharge its role as a replacement Sponsor on the ACE Market.
 
Article by Kok Chee Kheong (Partner) and Joey Tiw (Associate) of the Corporate Practice of Skrine
 
 
1 The full text of the proposed amendments under Consultation Paper No. 2/2022 is available here.
2 A ‘sophisticated investor’ as specified in Part I of Schedule 6 or Part I of Schedule 7 of the Capital Market Services Act 2007 includes, among others, accredited investors, high net-worth entities and high net-worth individuals.
3 A ‘Sponsor’ is a recognised principal adviser (i.e. an entity that fulfils the requirements set out in Chapter 7A of the SC’s Licensing Handbook) which has at least one employee who fulfils the requirement of a qualified person under the SC’s Licensing Handbook and must be registered on the Register of Sponsors maintained by the Exchange for the ACE Market. An applicant seeking admission to the ACE Market must apply for admission and listing through a Sponsor and comply with the requirements prescribed in the ACE LR (e.g. see Rule 4.07(2) of the ACE LR). The Sponsor will assess the suitability of the applicant for admission and listing on the ACE Market.
4 An ‘Approved Adviser’ is an Adviser authorised under the LEAP LR to carry out both the initial listing activities and post-listing activities on the LEAP Market. Refer to Rule 4.02(3) of the LEAP LR for requirements to be satisfied by a person seeking to be an Approved Adviser.
5 An ‘Eligible Person’ is a full-time employee of an Approved Adviser who is licensed by the SC to advise on corporate finance and satisfies the relevant requirements in Rule 4.02(b) of the LEAP LR.
6 Subject to Rule 3.21(2A), the Sponsorship Period under Rule 3.21(1) of the ACE LR is: (a) at least three full financial years after admission of an applicant to the Official List of the ACE Market; or (b) at least one full financial year after the applicant has generated operating revenue, whichever is the later.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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