Tuan Yang di Pertua, 16th March 1990
YB Tan Sri,
Motion under S.O. 18 on the Kuala Lumpur Stock Exchange (KLSE) missing srcips scandal
This is to serve notice under Standing Order 18(2) that I will be asking leave to move the adjournment of the House for the purpose of discussing a definite matter of urgent public importance, namely the Kuala Lumpur Stock Exchange (KLSE) missing scrips scandal, and the motion reads:
“ That under Standing Order 18(1), the House grants leave to Ketua Pembankang, YB Lim Kit Siang, to move the adjournment of the House for the purpose of discussing a definite matter of urgent missing scrips scandal;
“That his is a definite matter of urgent public importance because:
“Firstly: The Kuala Lumpur Stock Exhange (KLSE) has been in a state of chaos since its hasty and ill-conceived split from the Stock Exhange of Singapore (SES) on 1st January this year, which was rushed through in two months after it was announced by the Minister of Finance, YB Daim Zainuddin, in his 1990 Budget Speech in the Dewan Rakyat on 27th October 1989.
“Secondly: The hasty and ill-conceived split of the KLSE from SES had sparked off the chaos in the KLSE as the government efficiently and professionally handle any dramatic increase in daily trading volume, which shot up unprecedentedly from 40-70 million shares a day last December to 100-200 million shares a day in late 1990, the KLSE Executive Chairman, Nik Mohamed Din Nik Yusoff, admitted to the inefficiency of the KLSI and he said that the KLSE was unable to determine the threshold daily trading volume it would be able to handle.
“Thirdly: The inefficiency and mismanagement of KLSE and its clearinghouse – Securities Clearing Authomated Networks System, or SCANS – and lack of professionalism of brokers have brought about a prolonged chaotic state in the stock market causing great losses to the investing public, as illustrated by the following during this period:
(i) The non-delivery of scrips: Nik Din estimated two days ago on Wednesday that scrips for 49 million shares, worth in the region of $74 million, were “missing”. Three weeks ago, 150 million shares were estimated be “missing”, and the Asian Wall Street Journal of March 1, 1990 reported that some analysts estimated that the value of the “missing” certificates to be as much as $200 million.
(ii) The delivery of wrong scrips: For instance, investors who bought API shares were given Bedford scrips, and when the Bedford scrips were returned, were told that SCANS could not find the API scrips.
(iii) Circulation of false scrips like Promet and UEM.
(iv) The trading foul-ups at SCANS where certificates overflowed into the corridor as volumes built up, with suitcases of scrips being rushed out to brokers just to make room for the next batch of stocks regardless of inadequate documentation and mismatching of orders with numbered certificates. Even up till today, investors who bought shares as far back as January 4, 1990. (about two and a half months ago), have not received their share certificates!
(v) The report by Hanafiah Raslan and Mohamad, the independent auditors hired by KLSE to help trace the hundreds of millions of dollars of “missing shares, as SCANS’ operations were imparted by “insufficient infrastructure; inability of manning the operations of SCANS; inability of appreciating the full scope, extent and impact of the current overtrading activities in the market”. A special KLSE meeting of Feb. 17 admitted that “until mid-Febrauary, SCANS had been unable to clear the mounting banklog of buy and sell orders and had been unable to trace the shortfall or excessive delivery of shares sent to the exchange’s 53 member broker firms”. The situation of the missing scrips worsened after this special KLSE meeting.
(vi) The lack of professionalism and competence in the local stockbroking firms is best illustrated by
(a) The recent instance where BBMB Securities sold two million shares in Sungei Besi to Singapore stockbroking firm Kay Hian (James Capel), which bought them at 20 per cent discount and placed them with its institutional clents. When Kay Hian asked for the shares, it was found that the lot had not been approved for listing, causing Kay Hian a loss of $2 million. As a result, Kay Hian has stopped its remisiers in Singapore from dealing in all Malaysian shares. A day earlier, Ong & Co. restricted their dealings in Malaysian shares to 16 blue-chip Malaysian shares only; and
(b) The failure of three major brokers to meet two previous deadline of KLSE to verify their claims of missing scrips, which I understand are BBMB Secrutiies, TA Securities Sdn. And Rashid Hussein.
“Fourthly: The sacrifice of the interests of the local investors by a broker-dominated KLSE when it introduced and implemented the new Fixed Delivery and Settlement System (FDS) – or the T+4 and T+7 rules – after approval by the Finance Minister, on February 12 to solve the problem of themillions of missing scrips because:
(i) No Grace Period: The system was introduced on Monday, Feb. 12, without prior notice or warning. There was no grace period for those who bought and sold shares just before Feb. 12.
(ii) No Contra deals. Under the new system, if you buy on Monday, you can only sell on Friday.
(iii) Under the FDS, a buyer must pay on the seventh day even if there are no scrips. As a result, he could not sell because he has no scrips, and can neither take profit nor cut loss. He could not register shares for dividens, rights and bonus issues. A seller must deliver his scrip by the fourth day but will be paid only on the seventh day. The cards are stacked against the investors in favour of brokers, just to increase their financing ability.
(iv) The FDS merely treated the symptoms, but not he disease of the millions of missing shares scandal. The system was devised to help KLSE-SCANS to sort out the mess of the missing millions of scrips, in other words, penalizing and sacrificing the investors for the inefficiency and mismanagement of the KLSE-SCANS.
(v) the massive “missing” scrips problem hit only the local retail investors and hardly affected the foreign investors because brokers wanted to avoid ambarrassment and risking losing overseas business.
(vi) Increased workload: The new system adds to the paperwork of all stockbroking firms, which are already burdened with a heavy load after the split of the KL and Singapore stock exchanges. The press have reported of cases of stockbroking firms unable to print out by the next day the exact trading positions of their remisiers, let alone produce the contract notes on time for delivery of scrip or payment of cheques.
Aminstrative staff of stockbroking firms who work on 24-hour shifts and computers at SCAN and stockbroking firms are unable to cope with the additional workload, resulting in breakdowns.
“Fifthly: The failure of the Government and the KLSE. The KLSE did not say a single word to allay the mounting investor anxiety during the whole period of chaos and nightmare for the KLSE investors from January 2, until two days ago.
The KLSE Chairman’s Wednesday press conference however provided no comfort nor confidence as to when this problem would be resolved, and who would bear the losses incurred by the local retail investors aprt from his expressed hope that no one will initiate legal proceedings. This contradicted the Finance Minster who had earlier said that investors who did not get their shares within the stiputlated time can sue their broker. Of course, the brokers can sue the KLSE for the fault clearly lies with the SCANS operated by KLSE.
Nik din’s announcement of the establishment of a complaint bureau after three months of chaos and mayhem in the KLSE shows how remote it is from the reaities and problems of the local retail investors. An efficient, competent and responsible KLSE would have set up a complaints bureau at the latest by the second week of the KLSE chaos in mid-January and not in mid-March.
That the KLSE Chairman’s statement had no effect in restoring investor confidence is reflected by the lethargic market yesterday, althouth the Japanese stocks went up by over 300 points.
“Sixthly, the urgent need for the Government to take action to protect the interests of the small local investors from the long-running missing scrips scandal, especially as it is the Government which precipitated it because of the hasty and ill-conceived splitting up of the Kuala Lumpur and Singapore stock exchanges, when the government shoud have given more time to ensure that the KLSE and SCANS would be fully ready and competent to be solely responsible for the Malaysians stocks, either by ensuring at least six months’ of preparation between budget announcement and implementation of the split, or a phased process of the split over a longer period of time.
“Seventhly, the urgent need to protect the interests of the local retail investors by
(i) instituting a full public inquiry into the causes of the scandal of the “missing” scrips of millions of shares;
(ii) set up a special unit to ensure that the local retail investors are fully compensated for all losses incurred during this scandal;
(iii) review or revamp the Kuala Lumpur Stock Exchange which is dominated by government appointees who are not versed in the operations of the Stock Exchange, and to ensure representation of local retail investors to look after their interests;
(iv) Institute urgent measures to immediately resolve the problem of the missing scrips, including co-operation for the transitional period between KLSE and CLoB International, the over-the-counter trading facility set up by Stock Exchange of Singapore (SES) to deal with Malaysian shares. On Feb 13, one day after the implementation of the new FDS system by KLSE , the volume on CLoB International was 127.217 million against KLSE’s 112.664 million. Since then, the volume on CLoB International remained higher than KLSE’s
The Government and KLSE cannot be unmindful of the fact that with the new FDS system, Malaysians find it more convenient to trade on CLoB International, especially when selling shares, the cheques arrive faster than when selling on the KLSE.
(v) The Government should not repeat the mistake of rushing through changes without giving adequate notice, as in the announcement by the KLSE Chairman two days ago that all stockbroking firms will be required to have a paid-up capital of at least $20 million from June 1. At present, not more than half a dozen out of the 53 local stockbroking firms have a paid-up capital of $20 million. A public inquiry should first be held as to whether the capitalization of stockbroking firms had anything to do with the missing scrips scandal. The inquiry should also deal with the question of the issue of stockbroking licences, especially as it is understood that the authorities have decided to issue five more new licences, and the beneficiaries are to include PNB, Tan Sri Bashir Ismail and Wan Azmi.”
(Lim Kit Siang)
Parliamentay Opposition Leader