a n n u a l r e p o r t 2 0 0 4 - listed companybursa.listedcompany.com/misc/ar2004.pdf · 2007....

P r o g r e s s • S u c c e s s • P o t e n t i a l

A n n u a l R e p o r t 2 0 0 4

Mission Statement 2

Financial Highlights 4-5

Bursa Highlights 6

Chairman's Message 7-8

Board of Directors 9

Chief Executive Officer's Message 10-12

Event Highlights 13-16

Economic Review 2004 17

Market Performance 2004 18-19

Management Discussion and Analysis- Business and Operations 22-35

Management Discussion and Analysis- Financials 36-40

Statement of Corporate Governance 42-53

Statement on Internal Control 54-56

Audit Committee Report 57-60

Corporate Social Responsibility Statement 61-64

Investor Protection 65

Corporate Information 68-70

Group Corporate Structure 71

Board of Directors Profile 72-78

Board Committees 79-82

Consultative Panels 83-85

Regulatory Committees 86-88

Management Committee 89

Management Profile 90-92

Organisation Structure 93

Human Capital & Remuneration 94-96

Financial Calendar 98

Statement on Directors' Responsibility for the Annual Audited Financial Statements 99

Financial Statements for the year ended31 December 2004 100-152

Statistics of Shareholdings as at 31 March 2005 153-156

List of Properties 157

Additional Information 158-159

Information for Shareholders on Twenty-Eighth (28th) Annual General Meeting 160

2 • Bursa Malaysia Berhad Annual Report 2004

MissionStatementBursa Malaysia aims to

offer an internationally

competitive marketplace

for fund raising

and investment.

“ ”

Bursa Malaysia Berhad Annual Report 2004 • 3

“Quality and excellence are now the national agenda in building andreinforcing a strong performance culture for both public and corporatesectors.

Actions taken by the government towards a more conducive businessenvironment include tackling corrupt practices, re-institutingcompetitive bidding for government contracts, prioritising infrastructureprojects and a more efficient delivery system. All these augur wellfor national interest and in encouraging international investors’confidence and participation in the market.

The National Budget 2005 announced in September is a catalyst tostrengthen and enhance the competitiveness of the Malaysian capitalmarket. Proposals related to the capital market tabled by Prime MinisterYAB Dato’ Seri Abdullah Hj Ahmad Badawi are set to contribute towardsenhancing market liquidity, boosting global competitiveness of thecapital market and strengthening Malaysia’s position as a financialcentre.”

YUSLI MOHAMED YUSOFFCEO

Charting Progress


HighlightsFinancial

Year Year 18 months Year Yearended ended ended ended ended

June-00 1 June-01 1 Dec-021 Dec-03 Dec-04

1) Key Results (RM Million)

Operating Revenue 378.8 168.2 222.0 201.5 218.3

Operating Expenses (including depreciation and amortisation) 188.6 167.7 296.5 187.1 222.9

Operating EBITDA 243.5 37.2 (34.5) 35.8 14.5

Operating Profit 189.8 0.5 (74.5) 14.4 (4.6)

Other Income 86.2 56.7 105.5 81.3 68.2

Profit Before Tax 273.8 56.0 30.7 95.6 63.5

Net Profit attributable to Shareholders 180.2 36.2 2.8 59.9 35.1

Balance Sheet (RM Million)

Net Current Assets 965.2 861.9 824.2 859.5 862.0

Total Assets 1,588.7 1,646.3 1,658.2 1,744.0 1,765.1

Total Liabilities 235.1 245.4 272.4 304.1 287.0

Membership Fee and Reserves / Shareholders’ Equity 1,307.1 1,376.7 1,367.5 1,425.2 1,460.3

2) Key Ratio (%)

Operating Revenue Growth 66.8 (55.6) 2 (12.0) 2 36.1 8.3

Operating EBITDA Margin 64.3 22.1 (15.5) 17.8 6.63

Operating Profit Margin 50.1 0.3 (33.6) 7.1 (2.1)3

Net Profit Margin 38.8 16.1 0.9 21.2 12.33

Return on Shareholders’ Equity n/a n/a n/a n/a 2.4

3) Key Per Share Data (Sen)

Basic earnings per ordinary share n/a n/a n/a n/a 7.02

Net tangible asset per share n/a n/a n/a n/a 282.53

4) Key Operating Drivers

Average daily turnover value for On Market Transaction

(RM Million) 1,142 302 467 748 874

Average daily number of derivative contracts traded 3,109 2,938 4,678 8,131 10,617

Total number of new listings 28 36 57 58 72

Funds raised from IPOs (RM Million) 9,961 5,890 13,811 7,628 7,350

Number of Institutional Settlement Service instructions 78,622 108,500 280,355 203,645 289,035

Number of Central Depository System

accounts (Million) 2.7 2.8 3.0 3.2 3.4

1 Comparative figures from year 2000 to 2002 are based on the Accountants’ Report contained in Bursa’s Prospectusdated 23 February 2005.

2 The ratios for 2002 and 2003 are based on annualised 2002 revenue.3 The ratios for 2004 excluding the one-off Voluntary Separation Scheme (VSS) costs are as follows:

i) Operating EBITDA Margin: 23.7% ii) Operating Profit Margin: 15.0% iii) Net Profit Margin: 25.3%

“n/a” means not applicable as Bursa did not have any shares issued prior to 5 January 2004

BURSA MALAYSIA GROUP


HighlightsFinancial

Overall Financial Results

RM’ million

500.0

475.0

450.0

425.0

400.0

375.0

350.0

325.0

300.0

275.0

250.0

225.0

200.0

175.0

150.0

125.0

100.0

75.0

50.0

25.0

0.0

Note: * The figures for financial year 2002 were for 18-month period.

June 2000 June 2001 Dec 2002* Dec 2003 Dec 2004

Total Revenue

Operating Expenses

Net Profit Attributable to Shareholders

180.2188.6

465.0

36.2

167.7

224.9

296.5

327.5

59.9

2.8

187.1

282.8

35.1

222.9

286.5

Financial Year


HighlightsBursa

Note : All figures shown are based on calendar year

Total trading value (RM billion)

Total market capitalisation (RM billion)

800

700

600

500

400

300

200

100

0

481.6

640.3

722.0

Total number of listed companies

1000

800

600

400

200

0

865906

963

Turnover velocity (%)

816798

465.0444.4

2000 2001 2002 2003 2004

300

250

200

150

100

50

0

131.9

206.3

243.9

50

40

30

20

10

0

32.8%31.8%

24.7%

96.0

244.1

18.7%

2000 2001 2002 2003 2004

44.6%

2000 2001 2002 2003 2004

Total trading volume (billion units)

140

120

100

80

60

40

20

0

62.7

124.2 122.7

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

55.0

75.4

For turnover velocity, the trading value figures arebased on On Market Transactions


The transformation of Bursa Malaysia Berhad (Bursa) intoa demutualised and listed exchange signals the maturityof Malaysia’s capital market. In delivering on its expandedroles and responsibilities, the Board and I are committedto carving further progress for Bursa through achieving itscommercial objectives whilst at all times, maintaining itsregulatory obligations.

Industry Overview

Whilst exchanges have traditionally enjoyed monopolisticpositions, dynamic transformation of the global capitalmarket poses challenges and competition for exchangeoperators around the world. Globalisation has resulted ingreater capital mobility, lifting boundaries and increasingparticipation by international investors in markets thatprovide larger liquidity pools. Trends also includeconsolidation of markets, in providing global investmentsolutions. At the centre of this transformation, technologyfacilitates greater speed, broader access and lower coststo trading.

The Capital Market Masterplan (CMP) issued by theSecurities Commission (SC) in 2001 presents 24 strategicobjectives and 152 recommendations as a systematicapproach towards developing and strengthening theMalaysian capital market and addressing globalchallenges.

In line with the CMP, the consolidation of all exchangeswas completed in March 2002, with the merger ofMESDAQ, the high growth and technology exchange, withBursa, then referred to as KLSE. The next milestone wasthe demutualisation of the consolidated exchange inJanuary 2004 which was an enabler for expanded growthand development of the exchange. Another significantmilestone achieved was the listing of Bursa on 18 March2005 which places the exchange on a more competitiveand performance oriented platform.

Tun Mohamed Dzaiddin Haji AbdullahChairman

Chairman’s Message

The board’s role has become more

challenging in the face of globalisation

and increasing expectations of

shareholders and investors on the

board to perform its functions in the

most effective and competent manner

possible.

The board has the task of ensuring that

the right balance is struck between

business strategies and practices and

proper internal controls, accountability

and transparency.

“

”


MessageChairman’s

Bursa today is Malaysia’s fully integrated exchange,offering equities, derivatives and offshore products andcomprehensive exchange related services which includeclearing, settlement and depository for the equities andderivatives markets, and information services related toall our markets. With 963 companies listed as at 31December 2004, we aim to continuously offer a competitivemarketplace for fund raising and investments.

Performance in 2004

Amidst a robust economy and strong economicfundamentals, Bursa Group recorded a net profit after taxof RM35.1 million. Whilst this reflects a 41.4% decreasefrom the net profit after tax of RM59.9 million in 2003, itmust be understood that the decrease is largely due tothe one-off expense incurred from payout to staff relatingto the voluntary separation scheme (VSS) exercise inJune 2004.

Bursa Group however recorded an increase of 8.3% inoperating revenue, attributable to an increase in marketturnover. Improved market conditions, enhanced investorconfidence and higher number of corporate activitiescontributed to the increased turnover. Total valuetransacted on the Securities Exchange increased by 18.2%to RM243.9 billion. Income from clearing fee, score feeand derivatives trade fee also contributed to the increasein operating revenue with RM101.5 million, RM10.8 millionand RM15.6 million respectively.

Prospects for 2005

As Bursa Group’s revenue is dependent on market activity,the focus will remain on broadening access andconvenience to trading, enhancing investor confidence anddeveloping revenue potential from related businesses, thusreducing dependency on market volatility.

The Common Trading Platform which has been the priorityproject for Bursa Group will facilitate broader front-endaccess and encourage wider participation fromintermediaries and investors. The introduction of our newinformation services pricing model and new productsplanned will contribute towards growing revenue for theGroup.

These initiatives, coupled with the positive developmentsenacted by Government and other regulators towardsfurther liberalisation of the capital market will ef fectsignificant progress for the business of the exchange anddevelopment of the securities and derivatives industry.

Moving Forward

Besides creating shareholder value, the larger implicationfrom the listing of Bursa - the consolidated, nationalexchange - is the promotion of a more transparent marketand the enhancement of corporate best practices.

Bursa aims to offer an internationally competitivemarketplace for fund raising and investment. In competingon the global platform, Bursa will be committed to settingthe pace with exemplary standards of disclosure,transparency and corporate best practices whilst constantlyreviewing regulatory and infrastructure effectiveness andefficiency. In offering an attractive marketplace for fundraising and investment, Bursa will focus on expandinginvestment products and instruments to meet theevolving needs of investors.

A guidance issued by the SC in December 2004 sets outthe manner in which Bursa’s regulatory obligations are tobe fulfilled, among other things, in relation to regulatingmarket participants, surveillance, enforcement, fees andcharges. The relevant securities laws and the Guidanceon Self-Listing of Bursa Malaysia Berhad, issued by theSC in February 2005 provide that the responsibility ofregulating Bursa as a listed issuer rests with the SC.

We are committed to the maintenance of a fair and orderlymarket and investor protection. Intermediary activities,trading practices and disclosure of information aremonitored and market surveillance efforts will continue toprotect the interests of investors. The regulatory framework,infrastructure and operations of the market will be reviewedto ensure relevance, improve market efficiency and accordinvestor protection. Finally, we will pay careful attention inthe management of systemic risks. It is our endeavour toensure that via regulation, systemic risks are reduced andduly managed through capital and internal controlrequirements.

Our roles and regulatory processes are clear. Our powersand authority are defined. Our board, management andstaff will observe the highest professional standards,prudence and accountability in serving the interests of ourmarkets and in serving you, our shareholders.

TUN MOHAMED DZAIDDIN HAJI ABDULLAH


Tun Mohamed Dzaiddin binHaji Abdullah

Dato’ Abdul Latif bin Abdullah Datuk Haji Faisyal binDatuk Yusof Hamdain Diego

Datuk Azman binAbdul Rashid

of DirectorsBoard

Datin Paduka Siti Sa’diah bintiSheikh Bakir

Dr. Thillainathan a/lRamasamy

Dato’ Abdul Wahid binOmar

Izham bin Yusoff

Dato’ Seri Hwang Sing Lue Cheah Tek Kuang Peter Leong Tuck Leng Yusli bin Mohamed Yusoff


2004 was a year of transformation for Bursa Malaysia.Taking over the helm as CEO in March 2004, my maingoal was to achieve the objectives of successfullytransforming the exchange into an entity with expandedcommercial objectives whilst balancing its regulatory andpublic interest obligations.

My immediate task was to define business objectivesand strategies, improve efficiency and transform theorganisation into a performance driven entity. This wascoupled with leading the process for the Initial PublicOffering (IPO) and eventual listing of the exchange.

Guided by the Chairman and the Board, and supportedby Management and all staff, and in discussions withrelevant market and industry participants, we charted ourcourse for the market’s continued progress, thecompany’s success and sustained returns for ourshareholders.

Laying the foundation for progress

Strategic Objectives of Bursa Malaysia

1. Boost market velocity and liquidity2. Expand products and services3. Improve operational scale and efficiency

Yusli Mohamed YusoffCEO

The successful transformation of

Bursa is the collective effort of all who

have contributed to the exhange,

industry and market, past and present.

In charting further progress for Bursa,

it is the commitment of the

management team to strike a balance

between meeting commercial

objectives of the company in

enhancing shareholder value and in

fulfilling regulatory obligations in the

interest of investors, industry and

market.

“

”

Chief Executive Officer’s Message


MessageCEO’s

Boosting market velocity and liquidity

The first strategic objective of Bursa is to boost liquidityand velocity. For the year 2004 Bursa recorded a 31.8%turnover velocity. This is low relative to regionalbenchmarks and we aim to see it rise to pre-crisis levelsof about 60%. This we hope to achieve by encouragingtrading activity from both retail and institutional investorsthrough aggressive promotion of our market and listedcompanies.

Engagements with participating organisations, researchhouses, merchant bankers and local and foreign fundmanagers will be regularly conducted to explore new waysto collectively profile investment opportunities in growingthe equities and derivatives markets.

To facilitate research coverage on more Malaysian listedcompanies, a research scheme was launched jointly byBursa and the Capital Market Development Fund (CMDF).CMDF, consistent with its objective of promoting marketdevelopment, agreed to provide a RM7.5 million grant.There were 100 participating listed companies at the pointof launch of the CMDF-Bursa Research Scheme andwe target to grow this number further. The first researchreports were published in March 2005 and are availableon Bursa’s website.

Programmes for retail investors, especially those basedon investor education like roadshows, evening talks,expositions and conferences were pursued, some workingclosely with intermediaries.

Internationally, our participation at various internationalroadshows and forums in Singapore, Hong Kong, UnitedKingdom, Australia, Japan, Dubai and New York hassignificantly assisted in our singular mission of promotingMalaysia as an investment destination. Such marketingefforts will continue to be prioritised in the coming years.

The exchange will maximise new opportunities arising fromour new common trading platform (CTP) which will beimplemented by the second quarter 2005 for derivativestrading and end 2005 for equities. The CTP will expandaccess by facilitating the convergence of the equities andderivatives market. Through it, the introduction of newproducts can also be done more expeditiously. We canexpect greater participation by intermediaries andinvestors on our exchange with the full implementation ofthe CTP.

We have also identified the trading link between Bursaand Singapore Exchange (SGX) as an initiative towardsboosting liquidity and velocity. The link is scheduled forimplementation in 2006 and discussions are well underway with our counterparts and our regulators. The link willmake trading more convenient and efficient for investorson both sides of the causeway.

Expanding products and services

The second strategic objective is to expand both equityand derivatives products and other services that willenhance revenue growth for the exchange.

Information services is a priority growth area for Bursagroup. Contributing 5.9% to group revenue in 2004, theearnings from information services is expected to increasewith the implementation of the new distribution and pricingmodel for price feeds in 2004.

Clearing, settlement and depository services too holdpotential for growth. We expect to begin offering clearingand settlement facilities for the over-the-counter (OTC)derivatives market with the launch of the clearing ofethylene contracts.

We are also working closely with Securities Commission(SC), Bank Negara and market participants to introduce anew price reporting and dissemination system for the bondmarket, with the objective of enhancing transparency andefficient price dissemination.

We note the market demand for regulated short sellingand stock borrowing and lending and the potential of suchproducts in enhancing the depth of the market. In thisregard, we will continue to engage SC and the Ministry ofFinance for discussions on the framework and productfeatures.

Our plans to introduce new products such as single stockfutures and exchange-traded funds for conventional andIslamic markets will provide further depth to our investmentofferings. We will also facilitate the listing and trading ofReal Estate Investment Trusts (REITs) on our market toenable investors to access this investment product usingBursa’s market infrastructure.

Realising the potential of the Islamic capital market andMalaysia’s position as a growth market for Islamicinvestments, we will also be focusing on expandingIslamic instruments for both the onshore and offshoremarkets that we operate. As at end 2004, 778 from thetotal of 963 companies listed on the exchange are classifiedas Syariah compliant by the Syariah Advisory Councilof the SC. Our offshore exchange, Labuan InternationalFinancial Exchange (LFX) has carved a niche for Islamicinstruments with 6 international Islamic notes or ‘sukuk’listed amongst the 24 investment instruments offered.

Improve operational scale and efficiency

Efforts to improve turnaround time and businessefficiencies and achieve economies of scale in alloperations will continue to be pursued.


MessageCEO’s

Enhancing efficiency began with restructuring theorganisation and streamlining operations. We thenimplemented a voluntary separation scheme (VSS) in June2004 which resulted in a reduction of human resources by40.7%, or 417 people.

We also started an efficiency improvement programmewhich we call the ‘Renewal Work Out’ with the objective ofenhancing turnaround time, improving service quality andincreasing cost efficiency. Areas of focus cover bothoperational and regulatory functions and in 2004 theseincluded pooling of group funds for treasury management.Programmes that have been identified for 2005 includeimproving turnaround time for review of circulars issuedby listed companies and more efficient documentmanagement.

We divested our entire equity interest in Bursa TrainingSdn. Bhd. and Malaysia Share Registration Services Sdn.Bhd. in line with our strategy to focus on core businesses.

We embarked on the IPO and listing exercise of Bursa inearnest in the middle of 2004 as a listed Bursa wouldenable greater profiling of the marketplace and itsinvestment opportunities, instil greater corporate disciplineand transparency in running the organisation and allowus to invite new investors into the company.

In line with the transformation into a more performanceoriented organisation, key performance indicators or KPIswere introduced for the entire group and performancemeasurements prescribed. The creation of distinctivebusiness units and a business development unit furtherunderscored the distinction between commercial strategiesand regulatory responsibilities of Bursa.

Potential for growth

As a listed company, it is our pledge to grow shareholdervalue by optimising our capital structure and maximisingreturns to shareholders through dividend payments. Wewill also evaluate other capital management initiatives toachieve the same objective.

With the exchange being the main market barometer ofthe Malaysian economy, there is a strong correlationbetween the economic performance and development ofthe market and securities industry. With sound economicgrowth and strong economic indicators, the prospects andpotential for further growth are bright and encouraging.

Capital market policies implemented by the Government and SCand the financial market policies that are all geared towardsliberalisation and competitiveness have set an environmentconducive for growth. These market liberalisation efforts will translateinto expanded access, and enhanced interest and participation inour market by a larger group of investors and intermediaries.

We are very excited about the prospects of the market, with respectto liquidity, market sophistication and product development with theestablishment of five new foreign brokers this year.

Bursa’s position as a fully integrated exchange offering diversifiedinvestment options and its full suite of trading services provide usthe advantage of diversified sources of revenue.

Through our focus on technology and business transformation, wewill be able to achieve better economies of scale and improveefficiency in both business and operations. With investor protectionmechanisms and our risk management framework, we are betterprepared to face market risks and challenges.

As shareholders of Bursa, your active participation is invited inkeeping a healthy check and balance in ensuring that we keep ourcourse. Your involvement is significant not only in developing thecompany and market, but also in setting standards of shareholderactivism in the Malaysian securities industry.

The Management Discussion and Analysis on business andoperations and financial results will present the facts on our progressand proof of our success. I invite you to explore the potential withinthe exchange and growth prospects within the market in making aninformed decision to invest and progress with Bursa.

Last but certainly not least, I wish to extend my sincere appreciationto the Board of Directors for their guidance in charting the strategicdirection of the entire organisation during this challengingtransformation period. Also, to all staff that have been committedto the transformation process from a mutual organisation to ademutualised entity and now to a listed company, just within a spanof 14 months, thank you for your tireless contribution towardsrealising our mission and strategic objectives.

To all shareholders, grow with our progress, share our success andexplore our potential.

YUSLI MOHAMED YUSOFF


HighlightsEvent

5 January 2004

KLSE Converts into Public Company Limited by Shares

Kuala Lumpur Stock Exchange (KLSE) completed its conversion into a publiccompany limited by shares from a company limited by guarantee. With theconversion, KLSE vested and transferred its stock exchange business to anew wholly-owned subsidiary whilst the demutualised KLSE became theexchange holding company called Kuala Lumpur Stock Exchange Berhad(KLSE Bhd).

19 January 2004

LFX and IIFM enter into MOU

Labuan International Financial Exchange Inc. (LFX) signed a Memorandumof Understanding (MOU) with Bahrain-based International Islamic FinancialMarket (IIFM) to set the framework for greater co-operation towards promotingIslamic Financial products and services globally.

13 February 2004

KLSE Corporate Awards 2003

YB Senator Tan Sri Nor Mohamed Yakcop, Minister of Finance II, officiatedKLSE Corporate Awards 2003. Commenced in 2000, the KLSE CorporateAwards honours listed companies with exemplary corporate conduct. Twonew awards were given - ‘Best Disclosure in Annual Report’ and KLSECorporate Awards for MESDAQ Market.’

20 February 2004

Launch of Palm Kernel Oil Futures

Bursa Malaysia Derivatives Berhad, (formerly known as Malaysia DerivativesExchange Berhad) launched Palm Kernel Oil Futures (FPKO). The launchwas officiated by YB Dato’ Seri Dr Lim Keng Yaik, Minister of Primary Industries.

27 February 2004

Hand-over of Exchange Leadership

Out-going Executive Chairman of KLSE Berhad, Dato’ Mohd Azlan Hashimwho helmed the Exchange since 1998, handed over the leadership to TunMohamed Dzaiddin Haji Abdullah and Yusli Mohamed Yusoff who took overas Chairman and Chief Executive Officer respectively, effective 1 March 2004.


2 - 4 March 2004

Annual Palm & Lauric Oils Conference & Exhibition

Bursa Malaysia Derivatives Berhad organised the Annual Palm & LauricOils Conference & Exhibition : Price Outlook 2004/2005 from 2 - 4 March inKuala Lumpur. This was the 15th event in this series, attended by over 1,300delegates from 41 countries.

10 April 2004

KLSE Bhd’s 27th Annual General Meeting

KLSE Bhd’s 27th Annual General Meeting (AGM) held on 10 April 2004 wasthe demutualised exchange’s first AGM involving the participation of shareholderscomprising the Minister of Finance Inc., the Capital Market Development Fund,Licensed Stockbroking Companies and Remisiers.

20 April 2004

KLSE Bhd is now Bursa Malaysia Berhad

KLSE Bhd changed its name to Bursa Malaysia Berhad with effect from 14April 2004. The new name denotes an exclusive yet global image and reflectsthe broader deliverables of the exchange.

18 June 2004

Bursa and Singapore Exchange Limited begin discussion for cross-trading linkage

Bursa and Singapore Exchange Limited (SGX) began discussions for theestablishment of a cross-trading link to facilitate the trading of securities listedon Bursa Securities by investors in Singapore and similarly, securities listedon SGX by investors in Malaysia. The trading link is expected to be ready in2006.

30 July 2004

Bursa appoints IPO advisors

Bursa appointed advisors for its Initial Public Offering (IPO) exercise. Membersof the consortium were:

• Commerce International Merchant Bankers Bhd as the principal listingadvisor, joint global coordinator, joint book runner and joint lead manager

• UBS Investment Bank as the joint global coordinator, joint book runner andjoint lead manager

• Messrs Kadir, Andri & Partners as local legal advisor• Clifford Chance Wong Pte Ltd as international legal counsel• Messrs Ernst & Young as reporting accountants

HighlightsEvent


5 August 2004

Visit by Minister of Plantation Industries & Commodities

Bursa hosted YB Datuk Peter Chin, the newly appointed Minister of PlantationIndustries & Commodities. The Minister was briefed on the business andoperations of the exchange, particularly the derivatives market and commodityderivative contracts.

10 August 2004

KL Rat Race 2004

The Kuala Lumpur Rat Race 2004, the annual ‘run for charity’ co-organisedby Bursa drew the largest number of participants since the inaugural race in2000, with almost 400 participants and RM667,500 in total collections.Proceeds were donated to 10 charity organisations and community homes.

20 August 2004

Launch of Best Practices in Corporate Disclosure

Bursa launched the Best Practices in Corporate Disclosure aimed at improvingdisclosure of material information by listed companies and assisting companiesin meeting the letter and spirit of their continuous disclosure obligations underBursa Securities Listing Requirements and securities law.

26 August 2004

PM launches INVEST Malaysia 2004

Prime Minister, YAB Dato’ Seri Abdullah Hj Ahmad Badawi launched ‘INVESTMalaysia 2004’, held at Putra World Trade Centre from 26 to 29 August 2004.The four-day investment fair was aimed at creating awareness of investmentopportunities in the securities and derivatives industry. Besides talks on smartinvesting and other investor education topics, an exhibition featuringinvestment products and services was also held.

26 September 2004

Bursa’s Family Day Extravaganza 2004

The Family Day Extravaganza was held at the Bukit Kiara Equestrian andCountry Club for all staff and their families. Through this fun fair which includedrelay games, hot air balloon rides, performances by clowns and fire-eatersand pony rides, the spirit of togetherness and understanding amongst theBursa community was further enhanced.

HighlightsEvent


18 October 2004

Team Building for Bursa staff

Team building workshops were held groupwide from September to October2004 for all employees of Bursa with the objective of creating team synergyin obtaining better productivity output through understanding of corporategoals and objectives, appreciation of individual contributions and team supportand cooperation.

8 November 2004

Bursa receives grant from CMDF for research scheme

Bursa received a grant of RM7.5 million from the Capital Market DevelopmentFund (CMDF) for the CMDF-Bursa Research Scheme. The scheme,implemented in January 2005 aims to promote research coverage on morelisted companies, particularly the smaller capitalised entities, as part of theexchange’s initiatives to enhance informed investing and market liquidity.

11 December 2004

Bursa ’s EGM and CCM for IPO

Shareholders of Bursa approved all resolutions tabled at the ExtraordinaryGeneral Meeting (EGM) and Court Convened Meeting (CCM) in relation toits Initial Public Offering (IPO) and listing.

HighlightsEvent


Review 2004Economic

The year 2004 saw the Malaysian economystrengthening further with real Gross Domestic Product(GDP) expanding 7.1%, the highest since 2000. Theeconomy’s sterling performance was achieved againsta backdrop of rather adverse external developments.These included high world oil prices, continuedgeopolitical uncertainties especially in the Middle East,and slowing growth in some major economies, withJapan as well as Germany slipping into recessionduring the year.

In addition to Malaysia’s robust GDP growth, thecountry’s international reserves reached a record levelof RM253.5 billion (US$66.7 billion) as at 31 December2004, sufficient to finance 8.0 months of retainedimports and equivalent to 6.1 times short-term externaldebt. International reserves rose by a hefty RM83.0billion (US$21.8 billion) during 2004, boosted by largemonthly trade surpluses, and net inflows of bothforeign direct investment and portfolio investment.

The robust fundamentals of the Malaysian economywere evident from its broad-based strength with mostmajor sectors registering healthy growth during theyear. Providing much of the impetus to the Malaysianeconomy in 2004 were the manufacturing and servicessectors, with a combined 89% share of GDP. As in thepast years, the manufacturing sector was a key pillarof growth, gaining 9.8% in 2004. The services sector -the largest sector with a 57.4% share of GDP - grewa healthy 6.7% in 2004.

With the private sector taking the lead in supportingeconomic growth, Government efforts towards fiscalconsolidation continued unabated in 2004. Publicconsumption growth moderated to 6.6% in 2004,noticeably lower than 2003’s 10.0% rise. In contrast,private consumption showed a double-digit increaseof 10.1% in 2004, gaining momentum from a growthof 6.6% in 2003. Despite moderating growth in theMalaysian economy in the second half of 2004, privateconsumption still expanded an impressive 9.7% in thelast quarter of the year. This trend was supportedby sustained high disposable incomes, stableemployment conditions with the unemployment rateat just 3.5%, favourable financing conditions, lowinterest rates and low inflation.

Paving the way to sustained economic growth overthe longer term, private investment activity continued

to rise since its recovery in the third quarter of 2003.For the whole of 2004, gross fixed capital formationrose 3.1% despite a decline in Federal Governmentdevelopment expenditure during the period. In fact, inthe last quarter of 2004, private investment activity wasrobust due to expenditure on replacement of machineryand equipment in the manufacturing sector as wellas investment in oil exploration activities.

With crude oil prices up by a third in 2004, concernsabout inflationary pressures grew as the year unfolded.However, Malaysia’s track record in maintaining pricestability was proven once again with the ConsumerPrice Index (CPI) rising just 1.4% for the whole of2004. Even though the CPI climbed higher nearingyear-end, the index averaged only about 2% in thelast quarter of 2004.

Overall, fundamentals of the Malaysian economyremained robust in 2004, assisted by anaccommodating monetary policy and a slightly lessexpansionary fiscal policy. The Government’scombination of policies enabled the private sector toplay its role as the growth engine of the Malaysianeconomy more effectively while allowing fiscalconsolidation to be stepped up. In 2004, the fiscaldeficit was 4.3% of GDP, down from 5.3% in 2003 asthe Government continued to exercise fiscal prudence.

Going forward, prospects for the Malaysian economyremain bright. Future growth will be led by privatesector activity amidst a favourable environment ofstable prices and labour market conditions, with lowinterest rates. The country can also count on theexternal sector to boost economic activities despitesome expected moderation in global economic growth.Malaysia’s competitiveness in the global markets isunderscored by the continued success of its exports,which is reflected in the nation’s huge trade surplus ofRM80.7 billion (US$21.2 billion) for 2004, its seventhyear of positive trade balance. The country is well ableto meet the challenges arising from an increasinglycompetitive global environment by enhancing itscompetitiveness in traditional areas while developingnew sources of growth. Over the longer term,competitiveness of the Malaysian economy will beenhanced through increased human capitalinvestment, efficient public sector delivery system anda more dynamic and responsive private sector to meetglobal challenges.


Performance 2004Market

1000

900

800

700

600

500

400

300

200

100

0

02 J

an09

Jan

16 J

an

23 J

an30

Jan

06 F

eb

13 F

eb

20 F

eb27

Feb

05 M

ar

12 M

ar

19 M

ar26

Mar

02 A

pr

09 A

pr16

Apr

23 A

pr30

Apr

07 M

ay

14 M

ay

21 M

ay

28 M

ay

04 J

un

11 J

un

18 J

un25

Jun

02 J

ul

End Jan to early FebConcerns over rapidspread of bird flu virus in the Asian region

Mar 22: Landslide election victory for Barisan Nasional May 12: MSCI

added six countersto its Malaysian Index, effective 28 May 2004

Jun 24: AdditionalRM10b allocation for 8MP

Feb 6: Moody'supgradedMalaysia's foreigncurrency ratingoutlook

Feb 18:Reinstatementof Malaysia to CalPERS' list ofpermissibleinvestments

Apr: Fears of USrate hike, concernsover a hard landingin China, threat of rising oil prices and growing tension in the Middle East

May 14: Newsof revamp ofgovernment-linkedcompanies (GLCs)

May 26:Announcement of a better-than-expected 1Q 2004 GDP growth of 7.6% y-o-y

Mar 2: Purchase of5% stake in Telekom Malaysia by TemasekHoldings Pte fromKhazanah

Jan 7:Appointment ofDPM and MOFII, and Cabinetreshuffle

Mkt Transacted Volume Mkt Transacted Value Composite Index

Inde

x


16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

09 J

ul16

Jul

23 J

ul

30 J

ul06

Aug

13 A

ug

20 A

ug

27 A

ug03

Sep

10 S

ep

17 S

ep

24 S

ep01

Oct

08 O

ct

15 O

ct22

Oct

29 O

ct05

Nov

12 N

ov

19 N

ov

26 N

ov

03 D

ec

10 D

ec

17 D

ec

24 D

ec31

- D

ec

10 Sep: 2005 Budget-Announcement of measures to liberalise the capital market

Nov 22: Largest IPO in 2004, AirAsia Bhd, listed on Main Board

Jun 30: USFed raisedinterest rate by25 bps to 1.25%,the first rate increase in four years

Aug: Concerns over rising global crude oil prices and theirimpect on global economic growth

Nov 8: Fitch Ratingsupgraded Malaysia'sforeign currency rating

Oil prices continued to surgein Oct, breeching US$55 a barrel on 22 Oct

Nov 17: Fall in oil prices and renewed speculation about a ringgit peg review

Dec 16: Moody's upgraded Malaysia's foreign currency rating

Dec 26: Tsunamidisaster

Volum

e (Units)/V

alue (RM

) (M

illion)


“Let ethics be the focal point of any transformation. Ethics is aboutdoing the right thing instead of the easy thing - even when there is noone watching.

Ethics in regulating the market, at its broadest and most basic level,is the protection of investor interest. Lest we forget, this principlereaffirms a simple and salient truth - that markets exist only by thegrace of investors.”

TUN MOHAMED DZAIDDIN HAJI ABDULLAHCHAIRMAN

Success throughBusiness

Transformation


Discussion and Analysis - Business & OperationsManagement

A. BUSINESS UNIT

Bursa group comprises an exchange holding company and various subsidiaries which own and operate variousbusinesses. The businesses are operated through three business units:

• Exchange Business Unit• Clearing, Settlement and Depository Business Unit; and• Information Services Business Unit

A1. EXCHANGE BUSINESS UNIT

Resurgence in the IPO market, new records in derivatives trading and expansion of Islamic instruments in offshoremarkets mark our success. We will continue to expand the breadth and depth of investment products and growforeign participation and retail interest for further progress.

A1.1 Securities Exchange

As at 31 December 2004, Bursa Malaysia Securities Berhad (Bursa Securities), consisting of the Main Board,Second Board and MESDAQ Market, was ranked the eighth largest exchange in Asia by market capitalisation(excluding Japan), and the largest in South East Asia by number of listed companies.

Total Market Capitalisation and Total Numberof Listed Companies

2000 2001 2002 2003 2004

798 816865

906 963

722.0640.3

481.6465.0444.4

Market Cap.RM Billion

No. of ListedCompanies

Market Capitalisation Listed Company

1000

800

600

400

200

0

1000

800

600

400

200

0

Bursa Malaysia

ExchangeBusiness Unit

Bursa Securities

Bursa Derivatives

Labuan InternationalFinancial Exchange(LFX)

Clearing, Settlement andDepository Business Unit

Bursa SecuritiesClearing

Bursa DerivativesClearing

Bursa Depository

Information ServicesBusiness Unit

Bursa Information



With positive economic outlook and the increasing number of securities listed, market capitalisation reached thehighest level since 1996, at RM722.0 billion as at 31 December 2004, reflecting 12.8% increase from the RM640.3billion recorded at the end of 2003. Average daily trading volume was 494.6 million units, compared to 504.8 millionunits in 2003. However, average daily value rose to RM983.1 million, from RM838.7 million in 2003.

The equities market experienced a resurgence in initial public offerings (IPOs), with 72 new listings in 2004, thehighest number since 1997. MESDAQ Market was the focus for new IPOs with 31 listings, reflecting heightenedcapital raising activities in the high growth and technology sector. The Second Board added 26 new listings whilstthe Main Board, 15 companies, bringing the total number of companies listed on Bursa Securities to 963 as at end2004.

800

600

400

200

02000 2001 2002 2003 2004

1243 32

499

520

561 598

296 292 292 276

622

278

63

Main Board Second Board MESDAQ Market

Listed Companies by Main Board,Second Board and MESDAQ Market

2004 saw improvement in market turnover due to a combination of factors. These included the change in leadershipin Government, Barisan Nasional’s landslide election victory, the reinstatement of Malaysia on the permissibleinvestment’s list of California Public Employees’ Retirement System (CalPERS), the upgrading of Malaysia’s foreigncurrency rating, the remaking of Malaysia Incorporated, prospects from Government’s decision to divest their interestin government linked companies (GLCs) and the positive announcements relating to the capital market in the 2005budget which include further liberalisation of the capital market for the allocation for five foreign stockbrokingcompanies and global fund managers to operate in the country. The positive outlook prevailed in spite of theunpredictability in the Middle East, continued global economic uncertainty, rise in crude oil prices and fears of a USinterest rate hike.

Turnover Velocity Turnover value

Market Turnover

Turnover Value(RM Billion)

Turnover Velocity(Percentage)

32.8% 31.8%

2000 2001 2002 2003 2004

44.6%

50

40

30

20

10

0

500

400

300

200

100

0

18.7%

96.0

244.1

131.9

24.7%206.3

243.9



Total trading value increased from RM206.3 billion in 2003 to RM243.9 billion in 2004. Institutional participation,both domestic and foreign, increased from 45.0% in 2003 to 55.4% in 2004. Based on submissions made byparticipating organisations (POs), foreign trades made up 30.5% of total trading in 2004, an increase of 6.5% fromthe 24.0% recorded in 2003.

As at 31 December 2004 there were 33 participating organisations ( POs) and 59 branches operating nationwide.Of the 33 POs, six are universal brokers (UBs). UBs are POs that have merged with 3 or more POs and are able toprovide a broader range of capital market products and services. The UBs collectively have 8 Electronic AccessFacilities (EAFs) and 67 Electronic Access Facilities with Permitted Activities (EAFPAs) in place. EAFs are sites orpremises where clients of POs are able to initiate orders in respect of transactions or obtain market information.EAFPAs, in addition to the above services, have Dealer’s Representatives on site to facilitate the placement oforders and limited front and back-office operations, including CDS operations.

A1.2 Derivatives Exchange

Progress and growth were also evident in the performance of Bursa Malaysia Derivatives Berhad (Bursa Derivatives)which recorded new trading highs. Total volume traded on Bursa Derivatives in 2004 amounted 2,632,962 contractsrepresenting a growth of 31.6% over the volume of 2,000,271 contracts traded in 2003.

The KL Composite Index Futures (FKLI) recorded a total volume of 1,088,419 contracts for 2004, averaging 4,389contracts a day and more than tripling its volume in 2003, with a record high of 14,795 contracts on 27 May 2004.

The Crude Palm Oil Futures (FCPO) remained the most actively traded futures contract in the derivatives exchangewith a total turnover of 1,378,334 contracts, averaging 5,558 contracts per day and representing a national value ofapproximately 140,000 metric tons of crude palm oil traded per day. Bursa Derivatives operates the largest palm oilfutures market in the world - the FCPO is the preferred benchmark for the pricing of palm oil and its productsworldwide. The FCPO is currently the 10th largest commodity-based derivative contract traded worldwide.

In February 2004, Bursa Derivatives launched the Palm Kernel Oil Futures (FPKO) contract bringing the number ofcontracts available for trading to 8.

Open Interest has also grown, averaging 30,000 lots in 2004, signifying industry’s confidence in our products andmarkets.

As at 31 December 2004 there were 15 licensed trading participants (TPs), 30 associate participants and 94 localparticipants.

Volume/ Open Interest In Derivatives Market

Op

en In

tere

st

0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Jan-

04

Feb

-04

Mar

-04

Apr

-04

May

-04

Jun-

04

Jul-0

4

Aug

-04

Sep

-04

Oct

-04

Nov

-04

Dec

-04

No

of

con

trac

ts

Trading Date:31 December 2004Volume: 5,375Open Interest: 65,824

Trading Date:02 January 2004Volume: 6,097Open Interest: 49,784

Open PositionVolume



A1.3 Offshore Exchange

The Offshore market is represented by Labuan International Financial Exchange or LFX. LFX was created tocomplement various financial services offered in Labuan with its goal to facilitate mobilisation of funds and capitalraising through the listing and trading of a wide range of multi-currency (non-RM) financial instruments based oneither conventional or Syariah principles.

LFX recorded thirteen new listings in 2004, bringing the total number of listings to 24, growing the market capitalisationto approximately US$10.08 billion (RM38.30 billion). These include debt and equity linked instruments, sukuksissued by foreign issuers such as the Kingdom of Bahrain and the Government of Qatar. The exchange alsoreceived increased participation from local issuers with the listing of Malaysian Government Securities andGovernment-Linked Companies.

The listing of local guaranteed notes and foreign Islamic financial instruments, adds to the growth potential of LFXas an offshore Islamic Capital Market. In addition, the dual listing of the Sukuk Trust Certificate for the BahrainMonetary Agency International Sukuk Company on both the LFX and Bahrain Stock Exchange illustrates the abilityand potential of LFX to bridge global markets.

As at 31 December 2004 there were 7 listing sponsors and 4 trading agents.

A2. CLEARING, SETTLEMENT AND DEPOSITORY (CSD) BUSINESS

Offering comprehensive clearing, settlement and depository services with due attention to operational and systemicrisks amongst intermediaries is the pillar for CSD business success.

A2.1 Securities Clearing

Bursa Malaysia Securities Clearing Sdn Bhd (Bursa Securities Clearing) provides, operates and maintains a clearinghouse for Bursa Securities.

In 2004, clearing and settlement of securities for on market transaction (OMT) constituted the bulk of total securitiessettled and cleared, accounting for about 88% by volume and 89% by value.

Break down of Listed Instruments on LFX (as at 31 December 2004)

Year Listed Withdrawn Open-Ended Debt Securities TotalInstruments Instruments* Funds (USD) (USD) (USD)

2000 0 0 0 0

2001 1 0 250,000,000 250,000,000

2002 10 229,048,993 1,400,000,000 1,629,048,993

2003 13 292,622,228 1,965,205,000 2,257,827,228

2004 24 2 342,786,607 9,735,705,000 10,078,491,607

* Instruments withdrawn upon maturity



Settlement netting efficiency for the year 2004 was maintained at approximately 83% compared to the previousyear.

Bursa Securities Clearing recorded a growth of 18.2% in 2004 with shares valued at RM243.9 billion being clearedand settled as compared to RM206.3 billion in 2003. Under the Institutional Settlement Service (ISS) Buy & SellInstruction, 26.4 billion shares valued at RM128.2 billion were cleared and settled as compared to 18.0 billionshares valued at RM77.5 billion in 2003. This translated to a growth of 65.3% in value of shares cleared and settled.

ISS Instructions Cleared and Settled

2003 2004 % Change

OMTNo. of Transactions 202,196 287,338 42.1%

Volume 16,987,400,098 24,586,684,347 44.7%Value (RM) 74,702,678,127 122,064,177,584 63.4%

DBTNo. of Transactions 1,449 1,697 17.1%

Volume 1,032,096,602 1,776,025,628 72.1%Value (RM) 2,832,653,369 6,088,957,032 115.0%

TOTAL OMT & DBTNo. of Transactions 203,645 289,035 41.9%

Volume 18,019,496,700 26,362,709,975 46.3%Value (RM) 77,535,331,496 128,153,134,617 65.3%

In line with our continuing efforts to improve operational efficiency and widen the range of our products and services,the timing of settlement for securities and funds for DBT and the timing of settlement payments relating to ISScommissions and turnaround proceeds for both OMT and DBT were shortened from 3.00p.m. to 12.00p.m. and12.00p.m. to 11.00a.m. respectively, with effect from 12 January 2004.

As at 31 December 2004 there were 33 trading clearing participants (comprising participating organisations ofBursa Securities) and 9 non-trading clearing participants. The latter include financial institutions and resident custodianbanks that are allowed to report, clear and settle securities with Bursa Securities Clearing directly.

Volume And Value of Securities Cleared and Settled

2003 2004 % Change

On Market Transaction (OMT)Volume 112,183,200,896 108,014,303,854 (3.7%)Value (RM) 183,885,847,755 216,677,981,967 17.8%

Direct Business Transaction (DBT)

Volume 12,017,045,978 14,666,142,173 22.0%Value (RM) 22,452,434,897 27,184,119,665 21.1%

TOTAL OMT & DBTVolume 124,200,246,874 122,680,446,027 (1.2%)Value (RM) 206,338,282,652 243,862,101,632 18.2%



A2.2 Derivatives Clearing

Bursa Malaysia Derivatives Clearing Berhad (Bursa Derivatives Clearing) provides, operates and maintains a clearinghouse for Bursa Derivatives.

Open Position Summary (as at 31 December 2004)

Product 2003 2004 % change

FKLI 8,993 10,092 12.2%FCPO 21,149 28,314 33.9%FKB3 18,977 27,418 44.5%TOTAL MARKET 49,296 65,824 33.5%

The total market open position at the end of 2004 recorded an increase of 33.5%. All three key products, CrudePalm Oil Futures (FCPO), KL Composite Index Futures (FKLI) and Three-month KLIBOR Futures (FKB3) recordedstrong growth in 2004 with 33.9%, 12.2% and 44.5% increase respectively.

Total Derivative Contracts Cleared

Product 2003 2004 % change

FKLI 331,218 1,088,419 228.6%FCPO 1,429,967 1,378,304 (3.6%)FMGA 11 0 (100.0%)FPKO1 N/A 499 N/AFKB3 119,659 141,969 18.6%FMG5 118,635 19,494 (83.5%)FMG3 781 4,327 454.0%TOTAL 2,000,271 2,632,962 31.6%

1 FPKO was launched on 20 Feb 2004.

Margin collected has also increased on average, due to higher number of open positions. Average daily marginrequirement for year 2004 was approximately RM167.0 million vis-à-vis RM127.0 million for the year 2003.

To extend the breadth of assets that can be lodged as margin collateral, Bursa Derivatives Clearing had on 28January 2005, established an infrastructure for the lodging of shares as margin collateral for derivatives trading.

As at 31 December 2004 total amount of security deposits held by Bursa Derivatives Clearing, which may be usedif the clearing participant defaults in making payments, amounted to RM14.0 million. Bursa Derivatives Clearingalso maintains a clearing fund, fixed and variable, contributed by clearing participants. As at 31 December 2004,only fixed contributions had been made, amounting to RM14.0 million.

Daily Margin Summary (as at 31 December 2004)

Product Change inAverage Margin

2003 (RM ‘000) 2004 (RM ‘000)

Highest Lowest Average Highest Lowest Average

FKLI 57,761 11,119 22,098 83,424 24,664 39,972 80.9%FCPO 156,368 57,009 80,403 139,509 61,341 101,138 25.9%FPKO1 N/A N/A N/A 952 0 94 N/AFKB3 39,662 10,708 17,933 33,573 17,850 23,715 32.2%FMG5 4,406 254 3,017 3,674 0 1,714 (43.2%)FMG3 870 0 221 864 0 240 8.5%FMGA 48 0 28 32 0 1 (94.9%)

1 FPKO was launched on 20 Feb 2004.



Bursa Derivatives Clearing also plans to launch theservice to clear and settle over-the-counter ethylenecontracts this year.

As at 31 December 2004 Bursa Derivatives Clearinghad a total of 14 clearing participants.

A2.3 Depository

Bursa Malaysia Depository Sdn Bhd (Bursa Depository)provides, operates and maintains a central depositoryfor securities listed on the securities exchange.

Bursa Depository strives to enhance its services tocontinue supporting the ever-changing needs of itsusers, such as its CDS account holders and listedcompanies. There is a marked increase in the numberof securities immobilised from 29.5 billion in year 2003to 39.7 billion in year 2004, an increase of 34.6%,demonstrating the large number of securities issuedarising from new listings and secondary issues.

Bursa Depository through its Central DepositorySystem (CDS) provides comprehensive depositoryservices to a diversified group of market participantscomprising Stockbroking Companies, FinancialInstitutions, Institutional Investors, Merchant Bankers,Share Registrars, Issuing Houses and Retail Investors.

Bursa Depository also provides services to facilitatedevelopment of the local securities industry. Amongstsuch services are the omnibus accounts for book-

Depository Activity

2003 2004

No of CDS accounts opened 262,172 255,136Total net CDS accounts opened 3,233,206 3,440,057Total ADAs 40 35Total ADMs 30 27Total ADA Branches 96 114Total Companies in CDS 934 1007Total Line of Securities in CDS 1,227 1,310Shares Immobilised in CDS during the year (RM billion) 29.5 39.7Total Shares Immobilised in CDS (RM billion) 263.8 303.6New Companies prescribed into CDS 58 75Transfers processed 866,952 694,225Record of Depositors (RODs) produced 14,737 18,284Corporate Actions Processed 5,198 6,556

building exercise in respect of IPOs and holding ofunderlying securities for the issuance of ADR/GDRprogrammes.

The remaining Central Limited Order Book (CLOB)securities were successfully transferred from theCentral Depository (Pte) Ltd’s CDS account to theirrespective beneficial owners’ accounts on 1 October2004.

Bursa Depository, which manages a total of 3.4 millionCDS accounts as at 31 December 2004, will re-engineer itself to meet the needs of an increasinglysophisticated market and participants.

In recognising the importance of information technologyand the role it can play, eRapid, an internet basedfacility was introduced to enable more efficient andeffective dissemination of information to CDS users andeasy access to important information on CDS. On 20December 2004, CDS circulars were made availableto Authorised Depository Agents (ADAs) andAuthorised Depository Members (ADMs) via theinternet. Subject to SC’s approval, the platform will beexpanded to include delivery of RODs, allotmentprovisions relating to corporate exercises and InitialPublic Offerings (IPOs) and circulars to other users,such as share registrars and issuing houses.

As at 31 December 2004 there were a total of 35 ADAsand 26 ADMs.



the regulation of the securities and futures market andprovide further clarity on the regulatory duties of eachparty.

The SC also issued a Guidance on Bursa’s regulatoryrole which sets out the manner in which Bursa and itssubsidiaries shall fulfil their regulatory obligations andfunctions under the securities laws and includes thearrangements contemplated under section 11J ofthe Securities Industry Act 1983. The Guidanceencompasses the following areas:

(i) oversight by SC of Bursa’s performance of itsregulatory role;

(ii) Bursa’s role in relation to the registration,appointment and approval of market participants;

(iii) Bursa’s role in relation to the monitoring,supervision and regulation of the activities of marketparticipants in the securities and futures marketsoperated by our subsidiary exchanges;

(iv) Bursa’s role in matters pertaining to surveillanceand enforcement;

(v) Bursa’s role in relation to listing-related matters;and

(vi) fees and charges.

Subsequent to demutualisation, Bursa and itssubsidiaries continued to perform their roles andobligations vis-a-vis the markets and systems theyoperate, in accordance with their statutory duties.The key roles and obligations included, among otherthings, development of rules and policies, theadministration of the rules, supervision and monitoringof relevant market participants including theperformance of audits and inspection on the relevantmarket participants, enforcement of breaches of rulesand surveillance and investigation of trading and marketactivities.

In order to enhance efficiency of the fund raisingprocess in our markets, the regulatory roles of the SCand Bursa Securities vis-à-vis the MESDAQ Marketwere streamlined, resulting in the SC being the soleauthority to approve issues and listings of securitieson the MESDAQ Market. Thus, with effect from1 January 2005, Bursa Securities ceased to approveissues and listings of securities on the MESDAQ Marketbut continued to approve admissions to and quotationfor trading of securities on the MESDAQ Market.

A3. INFORMATION SERVICES BUSINESS

Expanding the potential of intellectual asset of theexchange in exploring revenue growth for the groupwill be a key focus for progress.

Bursa Malaysia Information (Bursa Information) is amarket oriented entity, which aims to leverage andmaximise the potential of our intellectual assets - realtime price information which is proprietary to theexchange. The information services business unitcompiles and disseminates comprehensive informationon prices, trading and indices for listed securities onreal time or delayed basis. It also develops and providesinformation products and services for subscribers.

A new information services pricing model was launchedin October 2004, transforming a fixed licence fee basisinto a fixed fee plus variable fee basis for disseminationof market information via various means.

Bursa information has also embarked on the project toimprove the group Management Information System(MIS), a testament to our commitment in ensuring amore efficient platform for delivering information.

In 2004, two more products were launched to furthercomplement and expand the current range of products:the licensing of Bursa Malaysia Indices for Index-LinkedInvestment products and E-Site Information Services.With the product target market ranging fromparticipating organisations to investors; from theacademia to the media; from the government to thepublic, it is envisaged that Bursa Information can onlygrow from strength to strength in realising its potentialas an important source of revenue for the group.

B. REGULATION AND COMPLIANCE

The regulatory framework was reviewed to improvemarket efficiency and accord greater investorprotection.

In light of Bursa’s demutualisation, Bursa entered intoa Memorandum of Understanding (MOU) with theSecurities Commission (SC) on 5 January 2004. Theobjective of the MOU is to delineate Bursa’s regulatoryfunctions and those of the SC in order to furtherstreamline the operations and processes adopted in


Discussion and Analysis - Business & OperationManagement

documents (circular). Amendments to the LR andPractice Note No.18/2005 provided that BursaSecurities would no longer conduct a complete perusalof all circulars issued by listed companies prior to theirissuance but would assume a more risk-basedapproach to the perusal of circulars issued by MainBoard and Second Board listed companies. In thisrespect, with effect from January 2005 Bursa Securitiesceased perusal of certain circulars whilst continuingto review other circulars (by way of limited review orfull review depending on the type of circular). Thechange in the regulatory approach was expected tosignificantly reduce the time-to-market for issuance ofcirculars thereby facilitating the expedient completionof corporate proposals by listed issuers whilstpreserving the standard of disclosure.

In addition to changes mentioned above, thecontinuous review of the LR and MMLR, taking intoaccount the changing environment and feedback ofindustry participants, also resulted in changes to thedirectors’ training framework developed by BursaSecurities. The requirements of Continuing EducationProgramme (CEP) were repealed with effect from 1January 2005 and the onus of overseeing the trainingneeds of directors were required to be assumed bythe boards of directors of the respective listed issuer.Directors of listed issuers were, however still requiredto attend the Mandatory Accreditation Programme(MAP) and where applicable, comply with therequirements of CEP prior to its repeal. In addition,listed companies will be required to disclose in theirannual reports whether their directors have attendedtraining for the financial year and the type of trainingattended. Where a director has not attended anytraining, the reasons must be disclosed.

Improving and strengthening the quality of issuerslisted on Bursa Securities has always been a primaryfocus of Bursa Securities. In this respect, one of theefforts undertaken by Bursa Securities was toreview the framework for Practice Note No 4/2001(PN4) and Practice Note No 10/2001 (PN10) (PN4 andPN10 Framework) and to introduce a new requirementfor listed issuers to maintain a minimum issued andpaid up capital on a continuing basis. In relation to thePN4 and PN10 Framework, the amendmentsundertaken including the issuance of Practice NoteNo 16/2005 and Practice Note No 17/2005 (NewFramework) were aimed at expediting the time takenby listed issuers with unsatisfactory financial condition

B1. REVIEW OF RULES

As an integral part of our efforts to develop dynamicand robust markets and to further promote thecredibility and efficiency of our markets, oursubsidiaries’ rules were reviewed and the necessarychanges were made.

With the demutualisation of Bursa, relevantamendments were also made to the rules of Bursa’ssubsidiaries to give effect to the relevant provisions ofthe Demutualisation (Kuala Lumpur Stock Exchange)Act 2003 and the relevant securities laws.

Some key changes to the rules of Bursa’s subsidiariesare highlighted below.

B1.1 Changes to Listing Requirements of BursaSecurities

Several changes were issued to the ListingRequirements for the Main Board and Second Board(LR) and Listing Requirements for the MESDAQMarket (MMLR) in the year 2004. Amendments weremade, among other things, to give effect to relevantchanges in the securities laws.

One of the changes made for purposes of giving effectto relevant changes in the securities laws was inrelation to issuance of securities arising from bonusissues and share schemes for employees (ESOS) bypublic companies. Under the amendments to Schedule1 of the Securities Commission Act 1993 (SCA) thatcame into effect in January 2004, public companiesundertaking bonus issues and ESOS were exemptedfrom procuring the approval of the SC. Pursuantthereto, public companies seeking listing on BursaSecurities and companies listed on Bursa Securitiesthat wished to issue and list securities arising frombonus issues and/or ESOS on Bursa Securitiesneeded to apply only to Bursa Securities and to complywith the requirements in relation to bonus issues andESOS as prescribed under the LR. With this, BursaSecurities became the one-stop agency for listing ofbonus issues and/or ESOS. This new requirementserved to enhance efficiency in capital marketactivities.

Another change to the LR for the purpose of enhancingefficiency in the market was the implementation of anew framework for perusal of circulars and other



and level of operations (Financially DistressedCompanies) to regularise their condition. Thesechanges which took effect in January 2005 included arevised time frame of 8 months for the FinanciallyDistressed Companies (excluding cash companies) tosubmit their regularisation plans to the relevantauthorities for approval, failing which, an automaticsuspension of their securities would be imposed anddelisting procedures would be commenced within theprescribed period.

In addition, in order to enhance business efficacy andto aid MESDAQ Market companies in complying withthe MMLR, Bursa Securities issued two GuidanceNotes on Independent Directors and RecurrentRelated-Party Transactions of a Revenue Naturerespectively.

B1.2 Changes to Rules of Bursa Securities

Pursuant to the demutualisation of Bursa, the Rulesof KLSE were superseded with the Rules of MalaysiaSecurities Exchange Berhad (MSEB) with effect from5 January 2004. The Rules of MSEB retainedsubstantially the provisions of the Rules of KLSE. Thepertinent changes made to the rules of MSEB were inrelation to the governance structure of the stockexchange and the participating organisations (POs)arising from the demutualisation of Bursa.

To further enhance and boost efficiency in theoperations of the market participants, amendmentswere also made to the Rules of Bursa Securitieseffective 9 July 2004 pertaining to capital adequacyrequirements (CAR) to provide for the changes inrelation to the frequency of submission throughelectronic transmission of information and recordsrelevant to calculation of the Capital Adequacy Ratio,introduction of the Position Risk Factor for investmentsin unit trusts, review of the threshold for LargeExposure Risk (LER) and review of the meaning of“single equity” for LER.

Subsequent to the aforesaid amendments, theprovisions of the CAR in the Rules of Bursa Securitiesin relation to the paid up capital of POs were alsoamended to provide for the changes made as to thecomputation of the paid up capital of the POs, chargedassets, minimum operation risk requirement,suspended securities, LER, definition of “single equity”and LER requirements for exposure to Equity relative

to Instrument on Issue. These amendments took effecton 1 November 2004.

Changes were also made pertaining to the specificrequirements for physical segregation between duallicensed dealer’s representatives (for both securitiesand derivatives) and a single licensed dealer’srepresentatives (for securities only) in thecircumstances where futures broking business is alsoconducted at the PO’s premise. As a result of theseamendments, flexibilities were given to the POsintending not to have the physical segregation toprovide for the establishment and implementation ofthe required policies and controls to prevent the flowof information between the above dual licenseddealer ’s representatives and the single license dealer’srepresentatives.

B1.3 Changes to Rules of Bursa Derivatives andBursa Derivatives Clearing

The Rules of Bursa Derivatives Clearing wereamended effective 20 December 2004 to allow clearingparticipants to deposit shares for initial margin paymentwith Bursa Derivatives Clearing. Initially only cash andIrrevocable Letters of Credit were allowed as paymentof initial margin. With the acceptance of shares aspayment for initial margin, 25 blue chip shares listedon Bursa Securities were declared as acceptable forinitial margin payment by Bursa Derivatives Clearing.

Following this, the Rules of Bursa Derivatives werealso amended with effect from 20 December 2004 toallow trading participants (most of whom are clearingparticipants), to accept shares from their clients formargin purposes.

Further, in conjunction with the launch of a new productnamely Crude Palm Kernel Oil Futures (FPKO)contracts by Bursa Derivatives on 20 February 2004,relevant amendments were made to the Rules ofBursa Derivatives.

B1.4 Changes to the Rules of Bursa Depository

In the year 2004, amendments were made to the Rulesof Bursa Depository to allow depositors to determinethe authorisation period for balance enquiries. Withthese amendments in place, depositors would be giventhe liberty to determine the authorisation period forbalance enquiry and manage the balance enquiry of



their securities accounts in such manner as theydeemed fit. In addition, the removal of the saidrestriction was expected to reduce the administrativework on the part of the ADAs particularly in caseswhere no expiry date is specified by the depositors inthe prescribed form.

The Rules of Bursa Depository were also amendedeffective 30 December 2004 to include authorisedpersonnel of exempt dealers who perform pass throughactivities as a category of persons eligible to witnessCDS account opening documents. Exempt dealers arefinancial institutions which are allowed to conduct passthrough activities i.e. to solicit and accept orders fromtheir clients to transact in securities and pass suchorders to a PO for execution, without being licensed.They are declared exempt dealers by virtue ofSecurities Industry (Exempt Dealer) Order 1996.

The effect of the above was to allow clients of exemptdealers to not only submit forms for opening of tradingaccounts and to pass orders for transacting in securitiesthrough them but also to submit forms for opening ofCDS accounts via the exempt dealers, which wasnecessary for the purposes of investing and trading inshares. The amendment thus provided investors withgreater convenience in terms of trading on the marketby allowing them to treat the exempt dealer as a onestop centre for their dealings.

B2. REGULATORY ACTIVITIES ANDCOMPLIANCE

B2.1 Perusal of draft circulars and documents toshareholders

Issues & Listing Division conducts perusal of draftcirculars and other documents to shareholders toensure compliance with the standard of disclosureprescribed in the LR, which include ensuring thatshareholders are given all such information as theyand their professional adviser would reasonably expectto find in a circular of that nature, for the purpose ofmaking an informed investment decision. The numberof draft circulars and other documents submitted toBursa Securities for perusal in 2004 was 1,292compared to 1,087 in 2003.

B2.2 Enforcement

Based on the Corporate Governance Survey of Asia inCG Watch September 2004 conducted by CLSA and

the Asian Corporate Governance Association,Malaysia’s corporate governance practices haveimproved whereby Malaysia has moved up to fourthposition in 2004 from fifth position previously. This camelargely from a higher score on enforcement due to astricter implementation and enforcement of goodcorporate governance practices.

The number of instances of non-compliance of the LRhas decreased as compared to 2003 due to amongstothers, the greater awareness of the LR arising fromour continuous educational efforts and stricterenforcement actions. We will continue with ourcommitment to monitor compliance and to undertakeenforcement in order to maintain a fair and orderlymarket and enhance investor confidence.

Since the introduction of PN4 in February 2001 and itsrepeal in December 2004, a total of 128 companieshave been classified as PN4 companies during theperiod.

To-date, 74 PN4 companies have regularised theirfinancial position, 17 have been de-listed and 37 arein various stages to regularise their financial condition.

B2.3 Investigation and Inspection

In year 2004 we had 161 new cases for investigationand 219 cases of completed investigation. A total of16 annual inspections on POs (including selectedbranches, EAFPAs and EAFs) to determine compliancewith the various Rules, Regulations and Directives and34 readiness inspections on POs to determine theirreadiness prior to commencement of operations inrespect of branch, EAFs and EAFPAs were alsoconducted. Trading Participants (TPs) were alsosubject to inspections with 7 annual inspections and12 readiness inspections conducted. Disciplinaryactions were taken against the relevant marketparticipants for breaches of the subsidiaries’ rules.

Enforcement actions taken against Public ListedCompanies, Directors, Advisers and Sponsors for thefinancial year ended 31 December 2004

Number of Cases2003 2004

Caution and Impress 37 1Private Reprimand 70 49Public Reprimand 55 35Public Reprimand & Fine 39 30Total 201 115




B2.4 Market Surveillance Activities

In 2004, as a reasult of daily surveilance activities,several cases of suspected offences were detected.Suspected offences under the securities laws wereforwarded to SC for further action. These suspectedoffences include insider trading, market manipulation,false trading and transfer involving no change inbeneficial ownership.

Bursa had also declared 3 listed companies as“Designated Securities”. This measure was taken as apreventive step to curb excessive speculation andpossible manipulation as well as to protect investors’interest.

B2.5 Service Enhancements for Intermediaries

In line with our continuous effort to improve themanagement of systemic risk and system for monitoringPO’s financial position, Automated Risk Managementand Decision Making Analysis (ARMADA) System wasdeveloped and implemented.

To further enhance the electronic client order-routing,we revised the code on Electronic Client Order-routingSystem (eCOS). eCOS allows clients of POs to accesseCOS facilities via any personal computer or Internetaccess devices from anywhere around the globe. Asat 31 December 2004, 28 POs have implementedeCOS facilities.

C. OTHER BUSINESS

C1. CORPORATE TRANSACTION

As part of the group strategy to focus on its corecompetency, Bursa undertook the followingdivestments:

Disciplinary Participating Dealer’s Executive Director Authorised AuthorisedAction Organisation Representatives Dealing / Depository Direct

Executive Director Agents MembersOperations /

Executive DirectorCompliance

Struck Off - 4 - - -Suspension - 1 - - -Fines 11 5 - 15 1Reprimand 20 71 5 9 -

Disciplinary actions for year 2004

• In January 2004, disposal of 100% equity interest inMalaysian Share Registration Services Sdn Bhd(MSRS) and Bursa’s investment in MSRS’sredemable convertable unsecured loan stocksto Symphony House Berhad for a total cashconsideration of RM6.0 million; and

• In June 2004, disposal of the entire equity interest inBursa Training Sdn Bhd (Bursa Training) to a thirdparty for a total cash consideration of RM855,878.Bursa Training had previously acquired the business,assets and liabilities of Researh Institute InvestmentAnalysts Malaysia (RIIAM), a company limited byguarantee for a cash consideration of RM1.00.

C2. TECHNOLOGY

Bursa is committed to business and process efficiencythrough technology innovation. The development of theCommon Trading Platform (CTP) will broaden accessto multiple markets and uncover opportunities forefficient implementation of new products and services,re-defining potential of the exchange.

Since the implementation of the first computerisedsystem in 1984, Bursa has successfully automated allcritical operations including trading, real-time pricedissemination, clearing, settlement and depository,surveillance and risk management. The open out-crydays and delivery of physical share certificates havebeen replaced with silent clicks and electronic bookentries.

In recognition of our IT operations’ achievement inproviding and supporting a 100% system availabilityfor equity trading, settlement and depository, Bursa wasawarded the “Non-Stop Business Operations Award”by HP Malaysia in December 2004.



The main focus of Bursa’s technology developmentwas intensified in 2004 with the implementation of theCommon Trading Platform (CTP).

The CTP is planned for full implementation by 2006 toreplace the existing trading platforms.

The three major phases for implementation of the CTPare as follows:

• Phase 1 - Implementation of the new derivativestrading system by the second quarter of 2005;

• Phase 2 - Implementation of the new securitiestrading system by the fourth quarter of 2005. Atthis stage, a common trading platform will becreated. However, participating organisations andtrading participants will continue to have separatefront-end trading systems; and

• Phase 3 - Implementation of the common brokerfront-end trading system in 2006, as well as openaccess which will provide choice to participatingorganisations and trading participants on how theycan access the market and differentiate serviceofferings to the end customer.

In short, at the end of phase 3 of the project, the CTPwill provide trading convenience and efficiency throughan integrated platform for brokers to access and tradeboth the securities and derivatives markets, andpresent opportunities for the efficient implementationof new products and services.

In recognition of our progress and potential, Bursa wasmandated by the National Bond Market Committeeto develop and operate the Electronic Trading Platform(ETP) for bond market in Malaysia. With the firstphase scheduled to be system ready by the end of2005, ETP would create a dynamic price discoverymechanism to promote trading in the secondarymarket, enhance price dissemination and markettransparency.

In 2004, Bursa embarked on a major exercise toreplace the old network infrastructure implemented in1997 with the latest network technology from Cisco.This project, initiated in the 2nd quarter of 2004, wascompleted by end of 2004. This major undertaking notonly improved the reliability and operational efficiencyof the network but also enhanced network capacity.

With the successful implementation of the new network,the Exchange is now prepared for more inter-systemconnectivity in future.

C3. Business Transformation

Another key focus of the Exchange is to increasebusiness and operational efficiency and effectivenessthrough business transformation.

C3.1 Renewal Work-Out

Bursa adopted a business re-engineering programmein July 2004 which is known as Renewal Work-Out(RWO). RWO is a tool to improve performance andfacilitate change management. The RWO workshopsprepare and train staff in three key areas - issueidentification, problem solving and process re-engineering, through a systematic approach andstrategic analysis.

To support the initiative, the Management Committeeand Group Management team committed themselvesto the RWO and have been trained as facilitatorsthrough a series of Leadership Facilitation Workshops.

The pilot process started with six groups-Issues &Listing, Compliance & Inspection, Legal Advisory,Corporate & Legal Affairs, Information Services andTreasury. The projects ran within a tight 6 monthtimeframe. The projects resulted in significant reductionof turnaround time, costs simplification of processesand opportunities for revenue enhancement.

With the successful implementation of the pilot process,the RWO will be expanded groupwide and as part ofthe group’s commitment to improving quality, customerservice efficiency as well as reducing costs.

C4. RISK MANAGEMENT

Enterprise Risk Management (ERM) ensures thatbalance is struck between realising opportunities forgains in meeting business objectives and minimisingpotential adverse impact.

The Board of Directors entrusted the Risk ManagementCommittee with the responsibility for overseeing therisk management activities for Bursa Malaysia andrecommending appropriate risk management policiesacross the organisation.


A groupwide effort was undertaken in March 2004 todevelop and implement an Enterprise RiskManagement (ERM) Framework. Apart fromcompliance with the Securities Industry Act 1983, it isalso to ensure that the organisation achieves anappropriate balance between realising opportunitiesfor gains in meeting corporate objectives andminimising potential adverse impact.

The ERM framework provides the Board reasonableassurance regarding the achievement of the groupobjectives through prudent and consistent riskmanagement practices in conducting business andoperations.

Regular risk profiling exercises within each operatingunit, led by the Management team, Group Internal

Audit and Risk Management ensures risks atoperational level are effectively managed and we areprepared to face any conceivable crisis.

In terms of business continuity in the event of a disaster,our Business Continuity Plan has undergone 15revisions and more than 20 major mock exercises. Withthe objective of minimising disruption to all the servicesprovided by us, our plan enables us to operate all ourmission critical services within 24 hours of thedisaster. Additional precautions are taken by keepingcritical data offsite under the care of a third party vendor.This would allow us to recommence our business withina reasonable period of time even in the event of a totalloss to both the primary and disaster sites.



Discussion and Analysis - FinancialsManagement

OVERALL PERFORMANCE

The Group recorded net profit after tax (NPAT) ofRM35.1 million for the financial year ended 31December 2004, a decrease of RM24.8 million or41.4% compared to the NPAT of RM59.9 millionrecorded for the financial year ended 31 December2003. The significant drop in net profit was primarilyattributable to a one-off expense of RM37.3 millionrelating to the Voluntary Separation Scheme (VSS)implemented by the Group in June 2004.

The financial performance of the Group is summarisedbelow:

TOTAL REVENUE

Total revenue for 2004 increased by about 1.3% toRM286.5 million from RM282.8 million in 2003.

Trading Revenue

RM 135.8mil

Trading Revenue

RM 122.3mil

Stable Revenue

RM 66.2milOthers

RM 13.0mil

2004 2003

Operating revenue accounted for about 76.2% of totalrevenue whilst the balance was other income.

Operating Revenue

Total operating revenue for the year increased toRM218.3 million from RM201.5 million recorded in2003, representing an increase of RM16.8 million or8.3% from the previous year.

The increase in operating revenue was primarily dueto an increase in market turnover as a result ofimproved market conditions and higher number ofcorporate activities. Trading revenue from both theequity market and derivatives market comprised62.2 % of operating revenue in 2004, as opposed to60.7% in 2003.

Market turnover improved further in 2004 comparedto the previous year due to a combination of factorswhich helped boost investors’ confidence in the localmarket. Total value transacted on Bursa MalaysiaSecurities Berhad (Bursa Securities) increased byRM37.6 billion or 18.2% to RM243.9

a n n u a l r e p o r t 2 0 0 4 - listed companybursa.listedcompany.com/misc/ar2004.pdf · 2007....

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