An overview of the Capital Market Masterplan 2 by Sheba Gumis.
The completion of the first Capital Market Masterplan in 2010 ("CMP1") paved the way for the Securities Commission to introduce the Capital Market Masterplan 2 ("CMP2"). Launched by the Prime Minister on 12 April 2011, CMP2 provides a broad outline of the strategic direction of the Malaysian capital market for this decade.
GROWTH WITH GOVERNANCE
With the Malaysian capital market expected to expand up to RM4.5 trillion by 2020, CMP2 is aptly themed “
Growth with Governance” as it outlines the growth strategies to expand the role of the capital market and formulates governance strategies for investor protection and market stability. The objective of these strategies is to help the Malaysian capital market meet the challenges of the present decade.
The challenges that have been identified by the Securities Commission include transforming the competitive dynamics of the Malaysian capital market, managing the risks for a changing landscape and growth prospects for the Malaysian capital market up to 2020.
GROWTH STRATEGIES
With Growth being one-half of the theme, CMP2 outlines growth strategies with the aim of expanding the role of the capital market in financing business ventures, widening ownership of assets and generating returns on long-term savings.
The growth strategies highlighted in CMP2 seek to promote capital formation, expand intermediation efficiency and scope, deepen liquidity and risk intermediation, facilitate internationalism, build capacity and strengthen information infrastructure.
CMP2 contains various recommendations to promote capital market growth. These recommendations include increasing private sector participation in the venture capital and private equity industries, improving the bond market and widening the Islamic capital market international base.
Among the initiatives that will be taken to increase participation in the venture capital and private equity industries are the establishment of a regulatory framework for these industries, expanding participation of investment management industry in venture capital and private equity and promoting participation by public listed companies in supporting the growth of venture capital investee companies.
Collaboration will be sought from the industry to evolve business models to promote the growth of small and mid-cap companies. Various initiatives will be implemented to widen access to the bond market, including measures to facilitate greater retail participation, expanding the range of fixed-income products, strengthening disclosure and documentation standards and enhancing the regulatory framework for credit rating agencies.
Among the measures that will be taken to widen the Islamic capital market international base are collaboration with the industry to expand the range of Shariah-compliant stockbroking and portfolio products, building scale in Shariah-compliant equity, sukuk and investment management segments and increasing international collaboration on Shariah research and product development.
CMP2 also places emphasis on socially responsible financing and investment to encourage intermediaries and public listed companies to give greater prominence to social and environmental issues.
Also in the pipeline is the establishment of a private retirement scheme industry under the oversight of the Securities Commission. Focus will also be placed on producing a highly electronic environment to attract investors.
GOVERNANCE STRATEGIES
As CMP2 is conceived in the aftermath of the 2007 financial crisis where the collapse of the U.S. sub-prime mortgage market and consequent calls on credit default swaps brought the international financial markets to the brink of collapse, it is not surprising that CMP2 gives equal emphasis to governance.
CMP2 deems it necessary to ensure that governance arrangements provide robust safeguards to protect the interests of investors and the stability of the market. It outlines six governance strategies to achieve this objective, namely enhancing product regulation to manage risks, expanding accountabilities as the intermediation scope widens, developing a robust regulatory framework for a changing market landscape, ensuring effective oversight of risks, strengthening corporate governance and broadening participation in governance.
CMP2 will see a more conducive environment and a more efficient framework for product innovation. The intermediation scope of capital market intermediaries will be widened whereas greater accountability will be placed on boards of directors. Active shareholder participation will be promoted.
Among the governance measures that will be implemented are the streamlining of fund raising and product assessment processes and disclosure requirements, strengthening disclosure and post-issuance obligations, enhancing regulation of sophisticated products, enhancing internal and external controls for managing conflicts of interest and extending regulatory oversight over participants across the transaction chain.
Other areas where governance measures will be strengthened are regulatory oversight over systemic risks, transparency and communication on risks and the capability of intermediaries for risk management. Measures will also be introduced to achieve a more balanced composition of the boards of directors of public listed companies.
CONCLUSION
The main criticism of CMP2 is that unlike CMP1 which identified 152 specific recommendations to be implemented, CMP2’s strategies are broad and lack the specificity of its predecessor. It is evident that CMP2 is a skeletal framework which leaves the finer details to be fleshed out as the various strategies are implemented in the course of the present decade.
CMP2 seeks to produce an innovative capital market which is broad and deep, and operates within a framework of high standards of governance. If these objectives can be achieved, Malaysia will be one step closer to achieving its aspiration of becoming a developed nation by 2020.