law report

Local & Global News

Bursa: Business Rules Revamped to Strengthen Standards of Business Conduct and Efficiency for Brokers

SC: SIDREC to Start Operations

SC: Direct Retail Participation in Corporate Bonds

Anti-Money Laundering News

5-Year Jail Term and RM1 Million Fines for Money Laundering

Father and 2 Daughters to Enter Defence Against Money Laundering Charges

Islamic Finance News

Indonesia Plans to Offer Tax Incentives for Islamic Finance

Ethics & Governance News

Former Directors Jailed and Fined for Stock Market Manipulation

SC: High Court Allows the SC's Appeal in MEMS Technology Case

SFC: Former Bank Employee Banned for Forgery

SFC: Community Services Sentence for False Trading

SEC: Alcatel-Lucent Charged with FCPA Violations

SEC: Former Carter's Executive Charged With Fraud and Insider Trading

FSA: Investment Banker, Wife and Friend in Insider Dealing Case

FSA: RBS and NatWest Fined for Poor Complaint Handling

PATRON

TAN SRI AZMAN HASHIM ADVISOR

Maheswari Kanniah ~ RHB Investment Bank CHIEF EDITORS

Rueben Panchadcharam ~ AmInvestment Bank Suzana Ahmad ~ MIMB Investment Bank

CONTRIBUTORS

• Wan Hashimah Ahmad Merican ~ Affin Investment Bank • Teow Leong Wah ~ Alliance Investment Bank • Geetha Sivapathasundram ~ CIMB Investment Bank • Jessie Peter ~ ECM Libra Investment Bank • Chen Mun Peng ~ HwangDBS Investment Bank • Khaw Lin Lin ~ Hong Leong Investment Bank

• Zainap bt Abdul Majid ~ Kenanga Investment Bank • Zainal Adnan bin Zakaria ~ Maybank Investment Bank • Bakri Jamaluddin ~ MIDF Amanah Investment Bank • Chin Pik Yuen ~ OSK Investment Bank • Abdul Jalil bin Marzuki ~ Public Investment Bank

Disclaimer & Confidentiality Statement

The information depicted herein has been obtained from sources believed to be reliable but have not been independently verified and consequently no representation or warranty is made to their accuracy, correctness or completeness, and they should not be relied upon as such. Malaysian Investment Banking Association (“MIBA”) disclaims all liability for any direct or consequential loss arising out of or in respect of the use of this newsletter or its contents.

This newsletter is of a general nature and is intended to update on compliance related issues as part of MIBA’s ongoing training and education objective and to promote effective compliance culture. It should not be viewed as a substitute for professional advice on any subject covered herein.

Issue 2/2011 2 February 2011

2011201120112011

Issue 2/2011

2 February 2011

Page 1

Local & Global News

Bursa: Business Rules Revamped to Strengthen Standards of Business Conduct and Efficiency for Brokers Bursa Malaysia has on 3 January 2011, issued a public consultation paper seeking feedback on the proposed amendments to the Rules of Bursa Malaysia Securities Berhad (“Rules”) which are aimed at facilitating greater effectiveness for market regulation and greater efficiency in the business conduct of securities brokers, also known as Participating Organisations (“POs”). The significant changes in the proposal are as follows: • strengthening of the POs’ governance framework, • enhancing framework for self-regulation by the POs and key personnel of POs registered with the

Exchange (registered persons); • clarifying the powers of the Exchange to regulate the market, the POs and registered persons; • enhancing investor protection framework through enhancements in the framework for risk

management, conflicts management and the standard of conduct of POs and dealers’ representatives; • promoting innovation by providing POs with greater flexibility to manage and operate their business

based on their business model, activities and risk profile whilst not compromising on regulatory objectives;

• simplifying, streamlining and enhancing efficiency in processes, application and reporting requirements; and

• streamlining clearing and settlement rules and clarifying rules on novation of on-market transactions. Source: Bursa Malaysia

SC: SIDREC to Start Operations

The Securities Industry Dispute Resolution Centre (“SIDREC”) is on track to start operations in early 2011 following the gazette of the Capital Markets and Services (Dispute Resolution) Regulations 2010 which came into effect on 30 December 2010. SIDREC is the first dispute resolution body catered exclusively to address small claims in the Malaysian capital market. SIDREC provides a mediation and adjudication mechanism aimed at investors who have claims of RM100,000 or less arising from transactions involving capital market products and/or services. In essence, SIDREC will provide dispute resolutions in any dealing or transaction involving capital market products or services between clients and their securities brokers, futures brokers, fund managers and unit trust management companies. The decision and award granted by SIDREC is binding on the capital market licence holder. However, the claimant is free to pursue his claim in court if he is dissatisfied with the mediator’s decision. The facility is provided free to eligible individuals and sole proprietorships. One of SIDREC’s immediate priorities is to educate the investing public on SIDREC’s functions and how it can help investors. Source: Securities Commission Malaysia

MALAYSIA

MALAYSIA

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Local & Global News

SC: Direct Retail Participation in Corporate Bonds The SC has on 12 January 2011, announced that the guidelines and framework for direct retail participation in corporate bonds will be issued by year-end. Issues like investor protection and investor education will be sorted out before allowing investors to invest directly in this asset class. The regulator views that it is now timely to widen the investor base and investment spectrum given the growing maturity of the Malaysian capital market, in particular the corporate bond market. An option which is being considered in relation to the same is to provide the infrastructure which can facilitate direct participation of retail investors in new issues. For retail investors, investing in corporate bonds will provide a viable opportunity to seek higher returns in consideration of some exposures to credit and market risks. At present, Malaysian retailers can only participate through bond unit trust funds and exchange traded funds. In other developed bond markets in Asia such as South Korea, Japan and recently Singapore, retail investors are able to trade in bonds directly on the exchange or over the counter (OTC) market. Source: The StarBiz_

MALAYSIA

If you encounter difficulty,If you encounter difficulty,If you encounter difficulty,If you encounter difficulty, don't change your decision tdon't change your decision tdon't change your decision tdon't change your decision to go.o go.o go.o go. Change your direction to get there.Change your direction to get there.Change your direction to get there.Change your direction to get there.

Zig ZiglarZig ZiglarZig ZiglarZig Ziglar

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2 February 2011

Page 3


5-Year Jail Term and RM1 Million Fines for Money Laundering Two (2) unlicensed land brokers were sentenced to a five (5)-year jail term and fined RM1 million each by the Kuala Lumpur Sessions Court on 23 December 2010, for an offence under Section 4(1) of the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (“AMLATFA”) which were committed more than six (6) years ago. The two (2) were charged with sixteen (16) counts of money laundering involving sums of more than RM4 million as follows: 1. Gan Kiat Bend, faced four (4) money laundering charges involving RM2.4 million; and 2. Ismail Husin faced twelve (12) charges involving RM2.85 million. According to the facts of their cases, they were involved in the sale and purchase of land and falsifying of land ownership, with the proceeds paid to both of them. They were alleged to have committed the offence between 19 November 2003 and 9 January 2004. They were both granted a stay of execution pending their appeals to the High Court. Nevertheless, Gan Kiat Bend and Ismail Husin were ordered to pay RM2.4 million and RM2.6 million respectively as penalty or levy for the laundered money involved under Section 283 of the Criminal Procedure Code. Source: http://www.thestar.com.my/New Straits Times Note:

• Gan Kiat Bend and Ismail Husin were initially charged with money laundering when their respective cases were brought to the court on 5 February 2005 and 4 May 2005 respectively. The charged imposed on Gan Kiat Bend has made him the second person after Dr. Hamimah Idruss, to be charged under the AMLATFA.

• Section 4(1) of AMLATFA prohibits any person from engaging in, or attempting to engage in, or abetting the commission of money-laundering activities. A charge under this Section carries a maximum jail sentence of five (5) years or a maximum fine of RM5 million.

MALAYSIA

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Father and 2 Daughters to Enter Defence Against Money Laundering Charges Datuk Adzhar Sulaiman (“Datuk Adzhar”), owner and general manager of a car rental agency, and his two (2) daughters, Noradzma and Noradzrin, have been ordered by Sessions Court on 14 January 2011, to enter their defence against a total of 360 money-laundering charges involving RM59 million. The three (3) were alleged to have used the money from illegal proceeds to buy insurance coverage, various investment products, thirty-eight (38) lots of land in Perak and Pahang, and transferred the sum into the accounts of a family-owned firm, Noradz Travel & Services Sdn Bhd's (“Noradz”) subsidiaries. Datuk Adzhar and Noradzma were said to have committed the illegal deposit-taking offences while holding their respective positions in Noradz, at the company premises at Pandan Jaya between July 2006 and October 2008. Source: www.thestar.com.my

SC: Perpetrator of Ponzi Scheme Jailed The SC has on 10 January 2010, secured a deterrent sentence against Raja Noor Asma Raja Harun (“Raja Noor Asma”), the director of FX Capital Consultant (M) Sdn Bhd (“FX Consultant”) and FX Consultant, of a total one hundred (100) years in prison, two (2) years’ imprisonment for each of the fifty (50) counts of money-laundering under the AMLATFA. These sentences run concurrently and as such, Raja Noor Asma will only have to serve two (2) years of imprisonment. In addition, Raja Noor Asma was also fined RM5 million and jailed a total of twenty (20) years for operating a ponzi scheme that duped over 4000 investors throughput Malaysia between February 2007 and May 2008 to trade in more than RM100 million worth of Crude Palm Oil Futures contract. This marks one of the heaviest punishments against a capital market offender, reflecting the gravity of the offence. The court also instructed approximately RM8.3 million frozen under AMLATFA to be forfeited. The SC, which carried out the trial jointly with the Attorney General's Chambers, had urged the court to impose a deterrent sentence as the scheme involved a large amount of investors' funds. The custodial sentence meted out by the court serves as a stern warning to future offenders that violation of the public trust will not be treated lightly by the courts. Source: Securities Commission Malaysia

MALAYSIA

MALAYSIA

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Islamic Finance News

Indonesia Plans to Offer Tax Incentives for Islamic Finance The Indonesian central bank plans to submit proposals to offer tax incentives for Islamic Finance. This is expected to spur sukuk issuance in Indonesia, which was 32% that of Malaysia in 2010. Tax issues have been the main reason for the lack of sukuk issuance in Indonesia. Data show that sales of Shariah-compliant debt rose 56% to 26.2 trillion Rupiah ($2.9 billion) in Indonesia in 2010, compared with an 11% drop to 28.5 billion Ringgit ($9.3 billion) in Malaysia. HSBC Holdings Plc and Citigroup Inc., the third- and eighth-biggest sukuk underwriters in 2010 respectively, said the plan will boost sales of Islamic debt from the nation with the world’s biggest Muslim population. Bank Indonesia is also streamlining the approval process for new Islamic banking products. A 10-member joint-committee including representatives from the central bank, the national Shariah board and the Indonesian Association of Accountants will start work from January 2011. Under the existing system, products have to be first reviewed for compliance with Shariah law by the panel of scholars and then Bank Indonesia. Source: www.bloomberg.com

Global

Source : http://www.LearnIslamicFinance.com

Hawalah : Literally, it means transfer, legally, it is an agreement by which a debtor is freed from a debt by another becoming responsible for it, or the transfer of a claim of a debt by shifting the responsibility from one person to another – contract of assignment of debt. It also refers to the document by which the transfer takes place.

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Former Directors Jailed and Fined for Stock Market Manipulation Two (2) former executive directors of Impetus Group as follows, were jailed and fined for stock market manipulation offences:

Name Length of Jail Sentence Fines Imposed Datuk Philip Wong Chee Kheong (“Dato’ Philip”)

Twenty Four (24) months RM3 million

Francis Bun Lit Chun (“Francis”) Three (3) months RM2 million

Both Dato’ Philip and Francis had created a misleading appearance of active trading of Suremax Group Bhd (“Suremax”) shares by buying and selling through nine (9) CDS accounts. They were said to have committed the offence by indirectly being concerned in transactions of sale and purchase of Suremax that did not involve any change in the beneficial ownership of the said shares. The two (2) were accused of committing the offence together with businessman Ivan Ng Chong Yeng between 24 November 2004 and 22 March 2005. Source: http://www.thestar.com.my

SC: High Court Allows the SC's Appeal in MEMS Technology Case The High Court has on 11 January 2011, allowed SC’s appeal against the Sessions Court's sentence on Ooi Boon Leong (“Ooi”) and Tan Yeow Teck (“Tan”), the former directors of MEMS Technology Berhad (“MEMS Technology”). The Court had upheld the original fine of RM300,000 and further enhanced the sentence with a six (6) months imprisonment term each. Ooi and Tan had earlier pleaded guilty before the Sessions Court in February 2010 and were fined RM300,000 each. Ooi and Tan had been charged in April 2009 under S122B(b)(bb) of the Securities Industry Act (“SIA”) 1983 for authorizing the furnishing of misleading information to Bursa with regard to MEMS Technology’s' reported revenue of RM73.4 million which was contained in its unaudited Condensed Consolidated Income Statements for the twelve-month period ended 31 July 2007. The revenue was misleading as it included 41% of fictitious sales amounting to RM30.17 million. Source: Securities Commission Malaysia

SFC: Former Bank Employee Banned for Forgery A former employee of CITIC Ka Wah Bank Limited (“CITIC Ka Wah”), Peggy Yam Chin Yui (“Yam”), was banned by the Securities and Futures Commission (“SFC”) on 29 December 2010 from re-entering the industry for eighteen (18) months for forging her colleagues’ signatures on banking documents. Based on the evidence gathered by the Hong Kong Monetary Authority (“HKMA”) which referred the case to the SFC, Yam was found to have deliberately circumvented her employer’s internal control procedures in relation to verification of banking documents. CITIC Ka Wah’s internal procedures required that banking documents be initialed by designated bank officers to verify their accuracy or authenticity. Between August and December 2006, Yam forged the initials of three (3) fellow bank officers on six (6) different occasions on thirteen (13) banking documents. Yam admitted that she forged her colleagues’ initials on the relevant documents to speed up processing of the relevant transactions and to avoid troubling her colleagues. Source: http://www.sfc.hk/

Malaysia

Hong Kong

Malaysia

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SFC: Community Services Sentence for False Trading A retail investor, Chiu Yat Man (“Chiu”), was sentenced to one hundred and twenty (120) hours of community services for false trading in derivative warrants, after he pleaded guilty to fourteen (14) counts of false trading contrary to section 295 of the Securities and Futures Ordinance. Chiu was found to have placed forty-one (41) single board lot buy orders and eight (8) single board lot sell orders in four (4) derivative warrants, on fourteen (14) trading days between August and November 2009. Most of the single board lot buy orders were accompanied by much larger sell orders at slightly higher prices, which pushed up the nominal prices of the warrants and subsequently enabled Chiu to sell his holdings in the warrants that he bought earlier at lower prices. Meanwhile, the single board lot sell orders placed by Chiu were accompanied by much larger buy orders at slightly lower prices which pulled down the nominal prices of the relevant warrants so that he could buy them more cheaply. Chiu made a profit of $44,969 as a result of his manipulation in these derivative warrants. The SFC alleged that Chiu’s orders gave the investing public a false impression that there was genuine demand for the relevant warrants at such high prices and genuine supply of the relevant warrants at such low prices. Source: http://www.sfc.hk/

SEC: Alcatel-Lucent Charged with FCPA Violations The Securities and Exchange Commission (“SEC”) has, on 27 December 2010, charged Paris-based telecommunications company Alcatel-Lucent, S.A. (“Alcatel”) with violating the Foreign Corrupt Practices Act (“FCPA”) by paying bribes to foreign government officials to illicitly win business in Latin America and Asia. The SEC alleged that: • Alcatel’s subsidiaries used consultants who performed little or no legitimate work to funnel more than

$8 million in bribes to government officials in Costa Rica, Honduras, Malaysia, and Taiwan between December 2001 and June 2006, in order to obtain or retain lucrative telecommunications contracts and other contracts.

• all of the bribery payments were undocumented or improperly recorded as consulting fees in the books

of Alcatel’s subsidiaries and then consolidated into Alcatel’s financial statements. The leaders of several Alcatel subsidiaries and geographical regions, including some who reported directly to Alcatel’s executive committee, either knew or were severely reckless in not knowing about the misconduct.

Alcatel agreed to pay more than $45 million to settle the SEC’s charges, and pay an additional $92 million to settle criminal charges. Source: http://www.sec.gov/

Hong Kong

USA

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SEC: Former Carter's Executive Charged With Fraud and Insider Trading The SEC has on 20 December 2010, charged a former Executive Vice President of children's clothing marketer Carter's Inc. (“Carter”), Joseph M. Elles (“Elles”) for engaging in financial fraud and insider trading. Elles’ misconduct was alleged by the SEC to have caused an understatement of Carter's expenses and a material overstatement of its net income in several financial reporting periods. According to the SEC's complaint, Elles: • conducted his scheme from 2004 to 2009 while serving as Carter's Executive Vice President of Sales; • fraudulently manipulated the dollar amount of discounts that Carter granted to its largest wholesale

customer in order to induce customers to purchase greater quantities of Carter's clothing for resale; • concealed his misconduct by persuading the customer to defer subtracting the discounts from payments

until later financial reporting periods. He created and signed false documents that misrepresented to Carter's accounting personnel the timing and amount of those discounts; and

• realized sizeable gains from insider trading in shares of Carter's common stock during the fraud. Between May 2005 and March 2009, Elles realized a profit before tax of approximately $4,739,862 from the exercises of options granted to him by Carter and sales of the resulting shares. Each of these stock sales occurred prior to the company's initial disclosure relating to the fraud on 27 October 2009, immediately after which the company's common stock share price dropped 23.8%. The SEC also announced that it has entered a non-prosecution agreement with Carter, which is the first since the announcement of the SEC's new cooperation initiative earlier this year, under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles' unlawful conduct. Source: http://www.sec.gov/

FSA: Investment Banker, Wife and Friend in Insider Dealing Case Christian Littlewood, a senior investment banker and former UK Financial Services Authority (“FSA”) Approved Person, his wife Angie Littlewood (also known as Siew Yoon Lew and Angie Lew) and a family friend Helmy Omar Sa’aid have on 10 January 2011, pleaded guilty to eight (8) counts of insider dealing contrary to section 52 of the Criminal Justice Act 1993. They were alleged to have made approximately £590,000 profit from the trades. The offences related to trading in a number of different London Stock Exchange and AIM listed shares between 2000 and 2008 and were only brought to an end when the City of London Police working with FSA staff arrested the Littlewoods in March 2009. The third defendant Helmy Omar Sa'aid was returned to the UK in March 2010 following the execution of a European Arrest Warrant in Mayotte, one of the Comoros Islands. Source: http://www.fsa.gov.uk/

USA

Australia

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FSA: RBS and NatWest Fined for Poor Complaint Handling The FSA has on 11 January 2011, fined Royal Bank of Scotland (“RBS”) and National Westminster Bank (“NatWest”) £2.8 million for multiple failings in the way they handled customers’ complaints, responding inadequately to more than half the complaints reviewed by the FSA. The FSA’s investigation found that there was an unacceptably high risk that customers may not have been treated fairly due to a number of failings within the banks’ approach to routine complaint handling, including: • delays in responding to customers; • poor quality investigations into complaints, with complaint handlers failing to obtain and consider all the

appropriate information when making their decision; • issuing correspondence that failed to fully address all of the concerns raised by customers and failed to

explain why complaints had been upheld or rejected; • customers not receiving their Financial Ombudsman Service (“Ombudsman”) referral rights within the

appropriate time period; • failure to provide adequate training and guidance to complaint handling staff, on how to properly

investigate a complaint; the monitoring of complaint handling in branches and the management information produced was ineffective in assessing whether customers were being treated fairly; and

• failure to ensure that complaint handlers properly reviewed complaints taking account of all relevant factors.

53% of the complaint files reviewed by the FSA showed deficient complaint handling; 62% showed a failure to comply with FSA requirements on timeliness and disclosure of Ombudsman referral rights; and 31% failed to demonstrate fair outcomes for consumers. The failings in the complaints handling processes of RBS and NatWest were uncovered during the FSA’s review of complaints handling in the UK’s major retail banks. As a result of the thematic review, five (5) banks have undertaken significant action to improve their complaint handling. The banks agreed to settle at an early stage in the investigation and therefore qualified for a 30% reduction in penalty. Without this discount, a financial penalty of £4 million would have been imposed on the banks. Source: http://www.fsa.gov.uk/

Australia

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REGULATORY ALERT

GUIDELINES

BNM

5 January 2011 Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3)

The Guidelines: • Were first issued by BNM in July 2010. • Form part of the Capital Adequacy Framework for Islamic Banks which specifies the disclosure

requirements for credit risk under the standardized approach, market risk under the standardized and internal models approach and operational risk under the basic indicator or standardized approach.

• Specify that in addition to the minimum disclosure requirements on risk exposures, risk management practices and capital adequacy, Islamic banking institutions are required to disclose on the management of Profit Sharing Account Investment and key aspect of Shariah Governance.

Highlights of the Latest Update • The Guidelines have been updated to include the Internal Ratings-Based (“IRB”) Approach for

Credit Risk, including the relevant Appendices.

4 January 2011 Classification and Impairment Provisions for Loans/ Financing

The Guidelines • Were first issued by BNM in January 2010. • Set out the minimum requirements on classification of impaired loans/financing, provisioning for

impaired loans/financing and expectations that must be met by banking institutions with the adoption of FRS 139 Financial Instruments: Recognition and Measurement.

Highlights of the 17 December 2010 Update • The guidelines have been updated to clarify BNM’s expectations in relation to the classification of

rescheduled and restructured facilities, and where a loan/financing that is individually assessed for impairment does not result in impairment provisions.

• Rescheduled and restructured facilities can only be reclassified as non-impaired when repayments based on the revised or restructured terms have been observed continuously for a period as determined by the banking institution’s policy on rescheduled and restructured facilities

• In principle, loans/financing that have been rescheduled and restructured shall not lead to improved classification immediately upon perfection of the relevant documentation in relation to the rescheduling and restructuring exercise.

4 January 2011 Risk-Weighted Capital Adequacy Framework and Capital Adequacy Framework for Islamic Banks (General Requirements and Capital Components)

The Guidelines • Are applicable to all banking institutions licensed under BAFIA and all Islamic banks licensed

under Islamic Banking Act 1983. • Specify that Banking institutions (BIs) are required to comply with the Risk-Weighted Capital

Ratio (RWCR) requirement at all times for all its business operations in Malaysia and overseas. The general treatment on equity investment is as provided in paragraph 4.2 of the Framework.

• Also specify that additionally BIs are also required to maintain a minimum RWCR of 8% at all times at these business operations.

Highlights of the 3 January 2011 Update • BNM has clarified that the amount of collective impairment provisions and regulatory reserves

attributable to loans classified as impaired but not individually assessed for impairment shall be excluded from general provisions recognized under Tier 2 capital.

• The new addition is in line with the latest amendment to BNM’s Guidelines on Classification and Impairment Provisions for Loans/Financing. This is however, not applicable for banking institutions which have implemented IRB approach for credit risk.

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GUIDELINES

4 January 2011 Guidelines on Corporate Governance for Licensed Institutions (“LIs”)

The Guidelines • Are applicable to all Institutions licensed under BAFIA; bank holding companies/financial holding

companies as defined in paragraph 1.01 of the Guidelines; and any other institution specified by BNM.

• Prescribe the broad principles and minimum standards as well as specific requirements for sound corporate governance required to be observed by LIs and Bank Holding Companies (BHC)/Financial Holding Companies (FHC).

• Focus on the main areas of sound corporate governance namely board matters, management oversight, accountability and audit and transparency.

• Incorporate the various forms relating to the appointment of directors and Chief Executive Officers of LIs and BHC/FHC.

Highlights of revisions to the Guidelines Summary of Update Updated Paragraph/Revision Additional paragraph 2.27A was introduced to emphasize on the importance of effective separation between oversight and management in cases where directors consists of executives from the parent or related entities.

Where directors on the board of a Licensed Institution also include executives from the parent or related institution (e.g. regional office), the board of the Licensed Institution must be able to demonstrate that an effective separation between oversight and management is maintained in the overall balance between executive directors and non-executive directors on the board. This should take into account the extent to which the executives from the parent or related institutions assume accountability for decisions and actions within the Licensed Institution directly or indirectly, through reporting and decision making structures. Where such accountability is assumed, compensating measures must be put in place such as by having a higher balance of independent directors on the licensed institution’s board to ensure effective oversight.

Enhancements to paragraph 2.37 which emphasizes on the independence of the Chairman.

There shall be clear separation between the roles of Chairman and CEO, to ensure an appropriate balance of role, responsibility, authority and accountability. The Chairman of the board should be in a non-executive capacity and should not have an executive position or responsibility at the parent or related institutions. A non-executive Chairman can play a crucial role to encourage a healthy debate on issues and brings to the board a healthy level of scepticism and independence. The responsibilities of Chairman and CEO should be clearly defined.

Amendments to paragraph 2.59 to remove expectations on the appointment of deputy Chief Executive Officer (CEO) and Chief Financial Officer.

Deputy CEO and CFO (or other equivalent designations whatever they may be called) are critical positions in a Licensed Institution and both positions are delegated with significant powers by the board. Therefore, it is of crucial importance for a Licensed Institution to appoint a qualified person to hold the position. Bank Negara Malaysia will complement the Nominating Committee of the Licensed Institution by conducting limited vetting on the proposed candidates. In this regard, Licensed Institutions are required to submit relevant information as required by Bank Negara Malaysia.

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GUIDELINES

Summary of Update Updated Paragraph/Revision With this enhancement, the circular BNM/RH CIR 007-1 entitled Amendments to the Application Form BNM/APP for the Appointment/Reappointment of Chairman, Directors and CEOs has been withdrawn to avoid duplication.

Enhancements to the Form BNM/DIR which provides guidance to the Nominating Committee in preparing assessments on candidates for the position of Director, Chairman or CEO (refer Attachment 1 of the Guidelines).

Effective Date: 24 December 2010

CIRCULARS

BNM

4 January 2011 Revised Fees for Selected Services under RENTAS, eSPICK and FAST Systems

• The Circular is applicable to all members of systems operated by MyClear namely RENTAS, eSPICK and FAST systems (collectively known as MyClear systems).

• The Circular informs all members of MyClear systems on the implementation of the revised fees for the selected services provided by MyClear systems and the revision to the penalty charges.

• The revised fees structure and penalty charges are as per Attachment I of the Circular and shall be read together with the existing fees and charges stipulated in the respective rules of MyClear systems.

Effective Date: 3 January 2011

4 January 2011 Disclosure of Customer Information

• The Circular authorizes the disclosure of information or document relating to the affairs or account of a customer of the financial service provider when such information or document is required for the purposes and to persons specified in paragraph 6.2 of the Circular and subject to conditions as stated therein.

• The Circular also require that financial service providers establish policies and procedures in respect of disclosure of customer information to any external parties.

Effective Date: 1 February 2011

Bursa

11 January 2011 Clearing Circular No. 01/2011 –Change in Margin Rate

The margin rates in Clearing Circular No. 01/2011 will be applicable to all contracts which remain open at the close of business on Thursday, 13 January 2011 and will continue to apply until further notice.

11 January 2011 CDS Circular No. ADA/DOD/0001/2011– Counter Notification

Bursa Malaysia has prescribed the securities for the securities of CENTURY SOFTWARE HOLDINGS BERHAD (5195) which are proposed to be listed on the Main Market of its Official List (“Prescribed Securities”), to be deposited with Bursa Malaysia Depository Sdn Bhd.

3 January 2011 Trading Circular 1/2011 - Emergency Trading Arrangement

• All Trading Participants (“TPs”) are advised to have a backup facility in place to cater for trading interruptions due to either an order management system (“OMS”) or site failure. This is to prevent trading operations for the TP to be affected under such circumstances.

• All TPs are strongly encouraged to have an emergency trading arrangement with at least one other TP to conduct trading on behalf under such circumstances. It is preferable and recommended that the other TP selected for the emergency trading arrangement maintain a different OMS. This will reduce the possibility that the appointed TP will also encounter the same problem.

• Another alternative is for the TP to maintain a backup OMS. • TPs who currently do not have such an arrangement in place should implement the

recommended arrangement as soon as possible.

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CONSULTATION PAPERS

Bursa

5 January 2011 Consultation Paper- Revamp of the Rules of Bursa Securities

• Bursa Malaysia issued the CP seeking public feedback on the proposed amendments to the Rules of Bursa Malaysia Securities Berhad aimed at facilitating greater effectiveness for market regulation and greater efficiency in the business conduct of Participating Organisations.

• Public feedback is also sought for the proposed consequential and other amendments to the Rules of Bursa Malaysia Securities Clearing Sdn Bhd.

• The significant amendments proposed cover the following: Rules of Bursa Securities Rules of Bursa Clearing (S) � Powers of the Exchange; � Admission of Participating Organizations

(“POs”) and Registered Persons; � Obligations of Registered Persons; � Organization structure of a PO; � Governance of a PO; � Conduct of a PO; � Trading; � Defaulters List; � Conduct of other business activities: � Financial requirements; and � Transitional provisions.

� Reflecting the delivery and settlement obligations between Bursa Clearing (S) and Clearing Participants which are going to be removed from the Rules of Bursa Securities as discussed below; and

� Clarifying the provisions relating to the novation of an onmarket transaction especially in relation to the exact point in time the novation occurs and the delivery of securities under a novated contract.

MAULIDUR RASULMAULIDUR RASULMAULIDUR RASULMAULIDUR RASUL ---- 15 February 2011 15 February 2011 15 February 2011 15 February 2011 ----

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Question 1 What is the extent of disclosure under section 91 of Capital Market and Services Act (“CMSA”)? The purpose of section 91 is to draw the attention of clients of a registered person to the potential conflict of interest when the registered person makes a recommendation, to buy, sell or hold any particular securities that the registered person also has interest in. For this purpose, a general disclosure that the registered person and its employees may at any time, in the course of its trading and banking business, hold positions, trade or otherwise effect transactions, for its own accounts or the accounts of customers, in the relevant securities, would allow clients to make further reasonable enquiries as appropriate to establish the nature and extent of the conflict. The provision is not intended to compel registered persons to make disclosures to other interbank players or institutional investors that can be reasonably used by them to secure a market advantage. As an example, the registered person may disclose its interest in the securities in the following manner: “Bank A is the principal advisor and is one of primary subscribers to the issuance of these securities. Following this, we hold proprietary positions on the securities. Bank A and its employees are engaged in securities trading and banking activities. In the ordinary course of its trading and banking business, Bank A or its employees have traded and may in the future trade or otherwise effect transactions, for its own accounts or the accounts of customers, on the securities.” The example above is merely a guide and not intended to prescribe how disclosures are to be made by Registered Persons (RPs). Question 2 What can be construed as a recommendation under section 91? A recommendation applies to any circulars or other similar written communications regardless of channels (e.g. e-mail) used. However, in the case of “bought deals”, both written as well as oral recommendation are subjected to the requirement for disclosure. Question 3 Under what circumstances does the restriction under subsection 91(5) of the CMSA apply? This requirement applies only to an underwriting agreement. However, in the case where such agreement exists, it does not prevent a registered person from making an offer to sell or make a recommendation with respect to the underwritten securities within 90 days provided it is accompanied by a proper disclosure to the effect that the offer or recommendation relates to the underwritten securities. Question 4 Would section 97 apply in cases where both parties are either a registered person or a CMSL holder? No, section 97 would not apply to transactions where both parties are either a registered person or a CMSL holder. In addition, section 97 also does not apply to transactions between a registered person and a client where the registered person is acting in substance as an agent for the client to facilitate settlement in relation to dealing in securities through RENTAS.

Source: Bank Negara Malaysia & Securities Commission

GUIDELINES ON INVESTOR PROTECTION (PART 2)

Issue 2/2011

2 February 2011

Page 15

The two (2) largest and most influential systems of competition legislations are US Sherman Antitrust Act (“Sherman Act”) and European Union (“EU”) competition laws which were based on the European Commission Treaty on the Functioning of the European Union (“EC Treaty”). There are three (3) main objectives which have been significantly considered by the regulators in US and EU countries when determining the outcome of competition cases as follows:

1. Prohibition of agreements or practices which could restrict free trading and competition between businesses, including repression of free trade caused by cartels.

2. Ban of abusive behavior by a corporation dominating a market, or anti-competitive practices which tend to lead to such a dominant position.

3. Supervision of mergers and acquisitions of large corporations, including some joint ventures, which may threaten the competitive process.

CASE STUDIES ON THE IMPLEMENTATION OF COMPETITION LAWS The following examples provide implementation of competition or antitrust laws in the countries where the three (3) objectives have been adopted. The cases may involve different nature of businesses but similar principles have been applied.

FACTS OUTCOME

US CASES

1. Standard Oil Co. of New Jersey v. US • Standard Oil was using its stranglehold on refining capacity to

begin integrating backward into oil exploration and crude oil distribution and forward into retail distribution of its refined products to stores and eventually, service stations throughout US.

• Standard Oil allegedly used its size and clout to undercut

competitors in a number of ways that were considered anti-competitive, including: � underpricing; and � threats to suppliers and distributors who did business with

its competitors.

• The US Supreme Court found Standard Oil guilty of monopolizing the petroleum industry through a series of abusive and anti-competitive actions.

• It was concluded that the Standard Oil conduct had

resulted in monopoly or its consequences (i.e. higher prices, reduced output, and reduced quality).

• Standard Oil was then required to be divided into several

competing firms.

2. United States v. Microsoft

• Microsoft was accused of abusing monopoly power on Intel-based personal computers in its handling of operating system sales and web browser sales.

• The main issue was whether Microsoft was allowed to bundle

its flagship Internet Explorer (“IE”) web browser software with its Microsoft Windows operating system.

• It was alleged that the bundling was responsible for

Microsoft's victory in the browser wars as every Windows user had a copy of IE.

• It was further alleged that Microsoft's practice has unfairly

restricted the market for competing web browsers that were slow to download over a modem or had to be purchased at a store.

• The US Department of Justice (“DOJ”) has reached a settlement with Microsoft in 2001 requiring the company to: � share its application programming interfaces with

third-party companies; and � appoint a panel of three (3) people who will have full

access to its systems, records and source code for five (5) years in order to ensure compliance.

• The DOJ stated that the requirements were intended to

ensure stringent oversight procedures and explicit requirements to prevent Microsoft from engaging in monopoly.

• To date, Microsoft is still negotiating to lessen the

settlement agreement.

KKKNNNOOOWWWLLLEEEDDDGGGEEE CCCOOORRRNNNEEERRR MAIN OBJECTIVES OF REGULATING COMPETITION

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2 February 2011

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FACTS OUTCOME

EU CASES

1. EU Microsoft Competition Case

• The European Commission (“EC”) alleged that Microsoft has abused its dominant position in the market.

• It started with a complaint from Novell that Microsoft was

blocking its competitors out of the market through anti-competitive practices. The complaint centered on the license practices in 1993 which required royalties from each computer sold by a supplier of Microsoft's operating system, whether or not the unit actually contained the Windows operating system.

• In 1998, Sun Microsystems made another complaint on the

lack of disclosure of some of the interfaces to Windows NT.

• In 2003 the EC ordered Microsoft to offer a version of Windows without Windows Media Player and the information necessary for competing networking software to interact fully with Windows desktops and servers.

• Further, in March 2004, the EC ordered Microsoft to pay

€497 million, the largest fine ever handed out by the EC at the time, in addition to the 2003 penalties.

• In 2007, the EC upheld its previous decision following an

appeal by Microsoft.

2. Lombard Club Cartel Case (Austria) • The Lombard Club Cartel is a club established with Austrian

banks members. • The Club stated in its notes of meeting that “its objective to

exchange experience in relation to interest rates has repeatedly proved to be a useful means of avoiding uncontrolled price competition”.

• The EC seized documents showing that the banks were aware

of the antitrust implications of their behaviour. • For example, one participant suggested at a cartel meeting

that for precautions "no more minutes should be kept of such meetings". The legal department of one of the banks was also consulted on the matter and recommended a "destruction of all existing records".

• The EC imposed fines totalling €124.2 million on eight Austrian banks for their participation in the wide-ranging price cartel across Austria. The banking cartel was also ordered to be disbanded in 2002.

3. Royal Bank of Scotland (“RBS”) Case (UK)

• The United Kingdom Office of Fair Trading investigated individuals in RBS's Professional Practices Coverage Team on alleged unilateral disclosure (generic and specific) confidential future pricing information to their counterparts at Barclays Bank. The information was later taken into account by Barclays when determining its own pricing.

• Disclosures by RBS took place in a number of contacts involving information on the pricing of loan products to large professional services firms, such as solicitors, accountancy and real estate firms, in which RBS and Barclays are the main providers.

• RBS admitted to breaches of the competition law and agreed to pay a fine of £28.59 million.

4. Autorité de la Concurrence Fines 11 French Banks €384.9 million (France) • The French banks met and colluded so as to collectively

define the functioning details of the new system. Together, they decided to raise several fees.

• They were accused of the following infringements:

� charging unjustified €0.043 fee on 80% of the checks exchanged in France; and

� enforcing two (2) additional fees for ‘related services' (i.e. reversals services) which were still collected at the time the Autorité handed down its decision.

• For the first infringement to competition rules, the fines amounted to €381.1 million.

• For the second infringement to competition rules, the

fines amounted to €3.8 million. The Autorité concluded that level of the fees charged was not proportionate to the costs incurred by the banks and ordered revision of the fees by taking the costs of the most efficient bank as a benchmark.

Issue 2/2011

2 February 2011

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FACTS OUTCOME

ASEAN CASE

1. Pestbuster’s Case (Singapore) • Six (6) companies have colluded to submit tenders or

quotations for termite treatment projects involving the use of “Agenda” (i.e. a type of pesticide) on six (6) different projects.

• In each of the projects, the first company was already

providing pest control services or had recommended the use of “Agenda” to the customer. The first company would then inform some or all of the other companies of the project via email, phone or SMS to request them, in effect, to submit bids at prices higher than its own bid price, thereby increasing its chances of winning the job.

• The first company would also let them know the price of its

bid or the prices at which they should quote. The others would either agree to the request, thus giving the first company the assurance that there would be no competition, or they would simply submit higher bids.

• Since the competing bids from the other companies were

neither priced independently nor with the aim of winning the bids, the customers therefore did not receive competitive proposals.

• The Competition Commission of Singapore imposed financial penalties totalling S$262,759.66 on the six (6) companies for infringement of section 34 of the Competition Act 2004.

• Section 34 of that Act prohibits agreements between

undertakings, decisions by associations of undertakings, or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within Singapore. This would include practices such as bid-rigging or collusive tendering.

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