CMP2 outlines road map and strategies for next decade

CMP2, which came into effect immediately, outlines the road map, the strategies and agenda for the development and regulation of the Malaysian capital market for the next decade, which includes both the conventional and Islamic capital markets. It also plans to build on the successes of the first capital market master plan (CMP1) where, according to Zarinah Anwar, 95 percent of the 152 recommendations were successfully implemented.
"It was the capital market master plan that laid the framework for the extraordinary growth of the past 10 years. But we all know that the economic challenges facing Malaysia in 2011 are very different to those we faced in 2001. New problems demand new solutions, which is why I am pleased to announce today the launch of a successor program, CMP2. The next ten years holds a huge amount of promise for Malaysia's capital markets, and CMP2 is our strategy to unlock it. On current forecasts our capital market size will more than double to RM4.5 trillion by 2020, and with greater internationalization this figure could increase to as much as RM5.8 trillion over the same period," said Premier Najib.
Malaysia's capital market reached a significant milestone of RM2.26 trillion at the end of 2010, which is triple the RM717 billion size of the capital market in 2000. Of this, the Islamic capital market (ICM) alone exceeded RM1.07 trillion at the end of 2010, thus breaking the RM1 trillion barrier for the first time, and recording an impressive year-on-year growth of 15.2 percent.
The theme for CMP2, according to Premier Najib is "growth with governance, capturing the essence of Malaysia's journey toward becoming a developed nation - because we must do everything we can to ensure that Malaysia's capital market doesn't just grow, it grows with minimal risks in a well-regulated environment. To this end, under CMP2, the Securities Commission will begin the process of regulatory reform - streamlining the existing regulatory framework to achieve higher levels of operational efficiency, enhance the standards for fair and ethical business practices, and strengthen internal controls around business conduct and the management of risk."
The new CMP2 is also aimed at internationalizing the Malaysian financial services industry, and therefore the capital market, especially domestic companies venturing cross-border to diversify investments and risks and to achieve greater returns. This is particularly true of the government's ambition for the Malaysian Islamic capital market.
Malaysia, it is generally agreed, has the most advanced and comprehensive coverage of Islamic financial services across banking, Takaful and the capital market. "Our task now is to shift the focus of Islamic finance from serving domestic needs towards tapping the tremendous growth opportunities from intermediating international investments and corporate transactions," said Najib.
Indeed, the internationalization of the capital market is a necessary pre-requisite to strengthening Malaysia's Islamic Capital Market hub - set to increase almost threefold from RM1.1 trillion in 2010 to RM2.9 trillion in 2020. As such, according to Kuala Lumpur, CMP2 outlines strategies to enhance the distinctive value propositions offered by Malaysia for a broad range of Islamic intermediation activities, including increasing its capacity to structure cross-border transactions to make further inroads into the international sukuk market.
The task of the implementation of CMP2 lies with the Securities Commission which has the mandate to collaborate with key industry players to expand the range of Shariah-compliant stock broking products and services and build greater critical mass for the development of onshore portfolio management.
A seeding strategy will be developed to increase the diversification of Islamic investment strategies, particularly in nurturing high value-added Islamic fund management services such as the Shariah-compliant venture capital and private equity industries that invest based on the Islamic principles of active partnership and socially-responsible investing. The Securities Commission will also work to encourage the wider shift from a Shariah-compliant approach to a Shariah-based approach, promoting higher levels of innovation and international marketability.
Key priorities for CMP2 are i) to strengthen the role of the capital markets in promoting capital formation from the start-up stage to the financing of innovative ventures, big new projects and cutting-edge green technology; ii) to boost large-scale transactions, by widening access to the bond and sukuk market; iii) increasing intermediation efficiency and liquidity; iv) expanding the number of products on the derivatives market to deepening market liquidity, improving the ability to trade across markets and to hedge risks; v) changing the regulatory framework for fundraising and product regulation to slash unnecessary red tape and lead to faster turnaround of approvals; vi) introducing a new dual licensing scheme that will make it easier for dealers in the equity market to become licensed to trade in the derivatives market as well; and vii) increasing the number of proprietary day traders by almost threefold to enable more dealer representatives to become specialized traders.
other provisions of the CMP2 include the establishment of the Talent Corporation Malaysia Berhad to lead the government's new returning experts program to help meet the human capital requirements of the economic and government transformation programs, and the Malaysian National Development Plan. These include several fiscal incentives. In addition the government has introduced the residence pass and the special employment pass to help attract and retain top foreign talent, including in the Islamic finance industry.
Zarinah Anwar maintained that CMP2 will continue in the same tradition of CMP1 and hopefully would provide market participants clarity and certainty on the direction of the country's strategies for the development of the capital market in a changing and dynamic international environment.