I read with interest your report Stock Exchange aims for listing by end 2003 and, having regard to the current state of liquidity and sentiments, wish it better luck than those companies whose market price fell below that of the initial public offering (IPO) price.

At initial inception, our KLSE whose members are stockbroking companies is traditionally supposed to be a non-profit organisation not only in charge of trading and settlement of securities but to disseminate corporate information in a proper way and regulate listed companies to ensure corporate transparency and governance in respect to our capital market.

With "demutualisation" it will be changing its profile of non profit regulatory to that of profit directed, and now that the Regulator of listed companies is itself going to be listed, who will regulate the Regulator?

Yes, we all know some of the high sounding and much touted arguments for such a move:-

  • that in this wired globalised village, investors worldwide look for investment opportunities globally, and there is this huge transnational movement of capital to and fro raised through public offer of securities at stock exchanges that have a piece of that action;

  • That as we moved increasingly to a more complex mechanism of electronic trading system, there is need for investment of large funds in the Exchange for creating the necessary technology infrastructure so as to tap on transnational movement of capital; besides the money raised from listing, the KLSE could go to new products, better marketing, education programmes and better communication channels, etc;

  • Strategic alliances and mergers with other developed exchanges in the future are made easier;

  • That all these would provide the justification for our Exchange to grow beyond its present orientation and to re-invent itself by bridging the gap between capital providers constituting investors and capital seekers and intermediaries which are the Exchange's present trading members;

  • In the above sense, public listing of our Exchange is seen as the best way to secure its future in an increasingly competitive market.

    • In Malaysia Bolehland, it is also easy to follow the herd instinct of other more developed exchanges that are demutualising or have demutualised without any clear idea of what they were looking to achieve to promote a "brand" for itself after demutualising.

    As it is, our main problem is that our capital market of which the Exchange regulates does not even carry a brand to attract international portfolio and investment funds given:-

  • the state of corporate transparency and governance prevailing among our listed corporations, many of which are in a state of financial distress and may be delisted by end of this year;

  • our corporate leaders' (with substantial shareholding) treating the listed vehicles and making business decisions like their private fiefdom and placating the public shareholders by food and drinks during their EGMs and AGMs;

  • mums and dads investors are still buying securities based on rumours and speculation;

  • until only recently the market too (when lack of liquidity, tight trading rules and poor sentiments on equities worldwide give them an opportunity to rest) was dominated by shadowy syndicates and market operations which had networks everywhere to disseminate disinformation for manipulation purposes;

  • Many of listed companies are themselves linked to or dominated by government which international funds look askance at the little float around and the fact that from corporate governance and transparency perspectives, it difficult to regulate the government itself that calls the shots.

    • There will be other problems: stock brokers members holding 30 percent shares in the demutualised exchange are basically traders. What is there to stop them from selling their quoted and marketable shares in KLSE to the open market and even to prospective share manipulators?

    Of course, a shareholding cap could be set to prevent the exchange from being taken over. The ministry of finance has 30 percent shareholding, and there may be other rules. The government may also want to hold veto powers over future changes to the demutualised exchange's rules. But the question comes back to the first point — whether the government's excessive interference and involvement is well received or suspected by investors to make the demutualising a success.

    The Exchange should resolve the immediate problems afflicting our capital market which is its main public function, before it leapfrogs to this big idea of getting listed raising capital and making money. It is important to learn to walk properly before sprinting.