Second Consultation Paper on Proposed New Market for SMEs on Bursa MalaysiaNovember 2016
by , Loong Wai Teng
Bursa Malaysia issued a concept consultation paper (“Concept Consultation Paper”) on 2 September 2016 to seek feedback on its proposal to establish a new market for small and medium enterprises on Bursa Malaysia (“New SME Market”).
On 8 November 2016, Bursa Malaysia issued a second consultation paper for its proposed New SME Market (“Consultation Paper”) to seek public feedback on the regulatory framework governing the proposed New SME Market, including the following:
- the proposed New SME Market Listing Requirements (“Proposed New LR”);
- the proposed amendments to the Rules of Bursa Malaysia Securities Berhad (“Bursa Malaysia Securities”) (“Proposed BMS Amendments”); and
- the proposed amendments to the Rules of Bursa Malaysia Depository Sdn Bhd (“Proposed BMDepo Amendments”).
Proposed New LR
The Proposed New LR adopts a principle-based approach that emphasises on an appropriate and proportionate regulatory framework to commensurate with a qualified market meant for sophisticated investors. The Proposed New LR will govern the admission requirements and the post listing obligations of a company listed on the New SME Market.
The Proposed New LR includes guidelines relating to admission, advisers, new issues of shares, continuing listing obligations, transactions and suspension, de-listing and enforcement.
An applicant seeking listing on the New SME Market will not be required to obtain prior approval from the Securities Commission (“SC”) since the New SME Market will be considered an alternative market. The issuance of shares for the listing and quotation of shares on the New SME Market will fall within paragraphs 7 and 8(h) of Schedule 5 of the Capital Markets and Services Act 2007 (“CMSA”). Bursa Malaysia Securities will be the single approving authority for the New SME Market in order to promote greater efficiency and faster time-to-market.
The proposed admission criteria that must be complied with by an applicant are as follows:
- it must be a public company incorporated in Malaysia;
- it must have a clearly identifiable core business;
- only its ordinary shares will be listed on the New SME Market;
- it meets the prescribed public shareholding spread requirements of at least 10% of its total issued and paid up capital being held by public shareholders at the point of admission; and
- it is considered as suitable for listing by a listing adviser.
An applicant seeking listing on the New SME Market will be required to prepare a document describing the business and affairs of the applicant for purposes of listing instead of a prospectus (“information memorandum” or “IM”). The responsibility to ensure the accuracy, adequacy and completeness of information disclosed in the IM falls on the listing adviser as neither the SC nor Bursa Malaysia Securities will pre-vet the IM prior to depositing the IM with the SC.
In order to maintain the promoters’ commitment to the applicant after listing, a moratorium on the sale, transfer or assignment of shares is imposed on the promoters of an applicant. In the event the promoter or vendor is an unlisted corporation, Bursa Malaysia Securities will require undertakings to be given by all direct and indirect shareholders of the unlisted corporation (whether individuals or other unlisted corporations) up to the ultimate individual shareholders to ensure compliance with the moratorium requirements.
Higher general mandate to directors for new issue of shares or convertible securities is allowed under the Proposed New LR. The maximum threshold allowed under a general mandate is proposed as follows:
- an issuance on a pro rata basis to shareholders: 100% of the nominal value of the issued and paid-up capital of the listed corporation; or
- an issuance on a non-pro rata basis to shareholders: 50% of the nominal value of the issued and paid-up capital of the listed corporation,
(collectively “Proposed General Mandate”).
A listed corporation may issue shares or convertible securities to its director, major shareholder or chief executive or person connected to them (“Interested Parties”) under a general mandate on a non-pro rata basis, subject to the following safeguards:
- the general mandate expressly authorises the issuance of shares or convertible securities to the Interested Parties;
- the aggregate number of shares or convertible securities issued to the Interested Parties must not be more than 10% of the total issued and paid up capital; and
- such issuance of shares or convertible securities is approved by the board of directors and is done in the best interests of the company.
Under the New SME Market, a listed corporation will be allowed to undertake both renounceable and non-renounceable rights issues, unlike the Main Market and ACE Market which only allow a listed issuer to undertake a renounceable rights issues.
If a listed corporation proposes to undertake a rights issue on the New SME Market, there is no requirement to issue an abridged prospectus and IM. In a case where a rights issue is proposed pursuant to a Proposed General Mandate, shareholders will have to rely solely on information disclosed in the announcement in respect of the rights issue when making their investment decision as there will be no abridged prospectus, IM or circular issued by the listed corporation specifically for the rights issue. However, information which is necessary for investors to make an informed decision must be disclosed in the announcement of a new issue of shares (including a rights issue), e.g. the number, type and par value (where applicable) of shares to be issued, ranking of the new issue of shares, issue price, basis of determining the issue price, justification for the pricing, persons to whom the new issue of shares will be allotted or issued, proposed utilisation of the funds and approval required for the new issue. In the event a listed corporation undertakes a non-renounceable rights issue, the aggregate number of shares issued must not be more than 100% of its total issued and paid up capital.
For related party transactions, Bursa Malaysia Securities proposes that the ambit of the “related party” be limited to the listed corporation level only. As such, any transaction entered into by a listed corporation with a listed corporation’s subsidiaries’ or holding company’s directors or major shareholders will not fall within the proposed related party transaction framework, unless they are considered as persons connected with a listed corporation’s director or major shareholder.
Further, it is proposed to exempt immaterial or small transactions from the related party transactions and non-related party transactions requirements (“De Minimis Requirements”). The De Minimis Requirements are prescribed to exempt transactions which pose insignificant risk to listed corporations. In view that the New SME Market is a qualified market and should be subject to a liberal regulatory framework, the monetary limit in the De Minimis Requirement for the New SME Market is proposed to be RM250,000. This is relatively higher than the amount of RM200,000 prescribed for the ACE Market.
Upon listing, a listed corporation will remain on the New SME Market unless it applies for withdrawal of listing or is de-listed by Bursa Malaysia Securities.
Under the Proposed New LR, Bursa Malaysia Securities may at any time de-list a listed corporation from the New SME Market in any of the following circumstances, among others:
- if it has not appointed a replacement continuing adviser at the end of 3 months after the suspension;
- in the event it does not have a clearly identifiable core business and fails to acquire a new core business and comply with all the requirements relating to a significant change in business direction or policy prescribed in the Proposed New LR within 6 months from the date of the announcement or apply to Bursa Malaysia Securities for a withdrawal of listing within 6 months from the date of the announcement;
- if it fails to issue its semi-annual financial statements and annual audited financial statements within 6 months after the end of the relevant timeframes or such extension of time granted by Bursa Malaysia Securities; or
- in the opinion of Bursa Malaysia Securities, circumstances exist which do not warrant the continued listing of a listed corporation.
However, a listed corporation shall be automatically de-listed in the following circumstances:
- upon the commencement of a voluntary winding-up of a listed corporation or its major subsidiary in accordance with the Companies Act;
- upon a winding-up order being made against a listed corporation or its major subsidiary;
- upon appointment of a receiver or manager over the assets of the listed corporation or its major subsidiary; or
- where the listed corporation’s audited financial statements contain an adverse opinion by its auditors.
Proposed BMS Amendments
For purposes of trading in securities on the New SME Market by sophisticated investors, a new Chapter 16 is proposed to be included into the Rules of Bursa Malaysia Securities Berhad (“BMS Rules”) to set out the specific requirements that must be complied by:
- a company that carries on the business of trading in securities on the Bursa Malaysia Securities’ stock market and is admitted as a participating organisation under Rule 3.02 of the BMS Rules (“Participating Organisations” or “POs”); and
- a person stipulated under Rule 3.10 of the BMS Rules who are registered with Bursa Malaysia Securities and includes a Chief Executive Officer, Director, Head of Dealing, Head of Operations, Head of Compliance and Dealer’s Representative (as defined in the BMS Rules) of a PO (“Registered Person”).
It is proposed that only an investor which falls under Part I of Schedule 6 or Part I of Schedule 7 of the CMSA (“New SME Market Investor”) may trade or carry out transactions on the New SME Market. A PO must not allow a client to trade or undertake transactions on the New SME Market unless it is qualified as a New SME Market Investor or it is an existing shareholder of a company listed on the New SME Market (including a promoter of the company).
An existing shareholder of a company listed on the New SME Market may be allowed to sell their shares even though they may not qualify as New SME Market Investors, subject to any moratorium requirements imposed on promoters under the Proposed New LR. However, they will not be allowed to purchase more shares on the New SME Market.
Under the new Rule 16 of the BMS Rules, margin financing is not permitted for the purposes of subscription or purchase of New SME Market securities in order to avoid a situation in which a PO needs to liquidate a client’s margin account and the PO is not be able to sell the New SME Market securities for whatever reason, thereby exposing it to unnecessary risks.
The commission rate for trades in securities on the New SME Market is fully negotiable and there is no minimum or maximum commission applied to trading of securities on the New SME Market.
Proposed BMDepo Amendments
Bursa Malaysia Securities proposes only one change to the Rules of Bursa Malaysia Depository Sdn Bhd (“BMDepo Rules”) in relation to the framework for cash distribution in order to provide flexibility to a listed corporation on the New SME Market to make cash payments directly into its shareholders’ bank accounts.
The Proposed New LR will not require a listed corporation on the New SME Market to make payments of cash distributions directly into the bank account of its shareholders. However, the BMDepo Rules will be facilitative in that such listed corporations may request for the relevant bank account information to make payment of the cash distributions via direct credit into the bank accounts should they wish to do so.
The proposals contained in the Consultation Paper are subject to SC’s approval. Bursa Malaysia Securities will submit the proposals to the SC for approval after receipt of comments and feedback from the public and making relevant changes to the proposals, where appropriate in order to ensure that the regulatory framework governing the proposed New SME Market is practical and balanced.
For further details of the proposed concept or business model of the New SME Market, please refer to the Concept Consultation Paper and the Consultation Paper at www.bursamalaysia.com/market/regulation/rules/public-consultation.