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kpmg

16 March 2001

The State of the Investment Management Industry in Asia

Winter 2000

All factual information and statistics contained in KPMG’s State of the Investment Management Industry in Asia were obtained from publicly available materials. KPMG disclaims any responsibility for the accuracy of any of this information. Throughout this publication, the term “funds” is used to refer to both unit trusts and mutual funds. The information in this issue was collated from material published after the issue of the Summer 2000 edition.

KPMG and the KPMG logo are trademarks of KPMG International. March 2001, the Hong Kong member firm of KPMG International, a Swiss association. KPMG Hong Kong website: http://www.kpmg.com.hk

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State of Investment Management Industry in Asia kpmg Winter 2000 Page 1

The State of the Investment Management Industry in Asia is published by KPMG’s Securities Practice in Hong Kong. Factual information and statistics were obtained from publicly available sources and are issued without comment. The issues and views addressed in this publication are intended to be informational in nature and are not necessarily those of KPMG. Before taking any action on the basis of the information, please consult with your business adviser(s) or contact one of the KPMG offices listed below.

Hong Kong Tim Lewis (852) 2826 7225 [email protected] Bonn Liu (852) 2826 7241 [email protected]

Pakistan Masoud Naqvi 92 (21) 568 5847 [email protected]

Sri Lanka Rajan N Asirwatham 94 (1) 445 871 [email protected]

India Gautam Dalal 91 (22) 491 3131 ext. 103 [email protected]

People’s Republic of China Ian C O’Brien - Beijing (86) 10 6505 6300 [email protected] Paul M Kennedy - Shanghai (86) 21 6279 3399 [email protected]

Taiwan Yen-Ling Fang 886 (2) 2715 9789 [email protected]

Indonesia Istata T Siddharta 62 (21) 574 2333 [email protected]

Philippines Remigio A Noval 63 (2) 893 8507 [email protected] Mario T Mananghaya 63 (2) 894 1986 [email protected]

Thailand Wilai Buranakittisopon 66 (2) 236 6161 [email protected]

Japan Koichiro Nojima 81 (3) 5470 2560 [email protected]

Singapore Danny Teoh (65) 321 0521 [email protected]

Vietnam Bob Ellis 84 (8) 930 5880 [email protected]

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Malaysia Abdullah Abu Samah 60 (3) 255 3388 [email protected]

South Korea (Republic of Korea) Tae Hyun Cho 82 (2) 3438 2240 [email protected]

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Contents Topic Page § Preface and currencies 4-6 § Updates of regulatory laws and practices in Asian markets:

- Hong Kong 7-10 - India 11-13 - Indonesia 14-15 - Japan 16-17 - Malaysia 18-21 - Pakistan 22 - People’s Republic of China 23-24 - Philippines 25-26 - Singapore 27-28 - South Korea (Republic of Korea) 29 - Sri Lanka 30-33 - Taiwan 34-35 - Thailand 36-37 - Vietnam 38-39

For additional information, please contact: Hong Kong Hong Kong Tim Lewis Bonn Liu (852) 2826 7225 (852) 2826 7241 [email protected] [email protected]

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Preface

This is the Winter 2000 edition of the State of the Investment Management Industry in Asia . The purpose of this guide is to present new developments in 14 countries in the Asian region: Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Pakistan, the People’s Republic of China, the Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.

The information relating to regulatory law and practice is an update of the information in previous editions of the State of the Investment Management Industry in Asia. The opportunity has also been taken to provide useful additional information. Reference may be made to the information in previous editions. If you do not have copies of previous editions, you may obtain them by writing to Vicky Kwok, KPMG Publications, 8/F Prince’s Building, Central, Hong Kong or telephone her at (852) 2826 7368.

Asian currencies Country Currency Exchange

Rate as at 16 Mar 2001 (Currency per US$)

Foreign exchange controls

Hong Kong Dollar 7.799 Freely convertible; pegged to the US dollar at a rate of 7.8; no formal exchange controls.

India Rupee 46.68 Not freely convertible; restricted to the current account.

Indonesia Rupiah 10,335 Freely convertible; no restrictions on the repatriation of profits or capital.

Japan Yen 122.55 Freely convertible.

Malaysia Ringgit 3.8 Foreign currency funds may be repatriated subject to a certain levy imposed on the repatriated funds depending on the duration the funds have been kept in Malaysia.

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Pakistan Rupee 60.125 The following foreign remittances are allowed:

§ Remittances on account of principal, interest etc on the basis of a repayment schedule registered with the State Bank of Pakistan (“SBP”) of purely private sector entities excluding organisations which are 51% or more owned by the Government.

§ Remittances on account of admissible royalties and technical fees.

§ Remittances of dividends to non-resident shareholders on the basis of documentation prescribed by the SBP.

§ Remittance of instalments of principal and interest of foreign currency loans by Pakistani firms and companies on the basis of a repayment schedule registered with the SBP and remittance of principal and interest on account of foreign currency loans obtained by foreign controlled companies for working capital requirements in terms of a repayment schedule communicated to the SBP.

People’s Republic of China

Renminbi 8.2771 Not freely convertible; restricted to the current account.

Philippines Peso 48.555 Foreign investors may freely repatriate dividends/profits/capital/sale proceeds of shares in foreign currency arising from investment. Such foreign currency may be sourced from the Philippine banking system if the investment is duly registered with the Bangko Sentral ng Pilipinas (“BSP”) (Central bank) or from non-bank sources if the investment is not registered with the BSP.

Singapore Dollar 1.77325 Freely convertible; no formal foreign exchange controls. However, there are certain restrictions in respect of credit facilities extended to non-residents in Singapore dollars.

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South Korea (Republic of Korea)

Won 1,288.1 Not freely convertible; the Ministry of Finance and Economy supervises foreign exchange under the Foreign Exchange Control Regulations.

Sri Lanka Rupee 85.6 Not freely convertible; it is restricted to the current account. Apart from this alteration, same as the previous edition.

Taiwan Dollar 32.6905 Enterprises or individuals may not remit more than US$5 million within one year without prior approval from the Central Bank.

Thailand Baht 43.99 Freely convertible.

Vietnam Dong 14,551 Not freely convertible; convertibility subject to approval process.

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Hong Kong

Regulatory body

§ The Securities and Futures Commission (“SFC”) http://www.hksfc.org.hk/ authorises unit trusts and mutual funds under Section 15 of the Securities Ordinance. Its Committee on Unit Trusts considers authorisation issues and administers the Code on Unit Trusts and Mutual Funds. The Mandatory Provident Funds authority regulates the pension and superannuation funds industry in Hong Kong, in particular Mandatory Provident Funds Schemes.

Types of funds

§ Collective investment funds can be organised in Hong Kong either as unit trusts or as mutual funds, both open and closed ended. Unit trusts and mutual funds must be authorised in order to be marketed to the public in Hong Kong. Authorised unit trusts or mutual funds are classified as Equities Funds, Bonds Funds, Unit Portfolio Management Funds, Money Market/Cash Management Funds, Warrant Funds, Leveraged Funds, Futures and Options Funds and Guaranteed Funds.

Laws and regulations

The laws and regulations governing funds in Hong Kong are:

§ Securities Ordinance

§ Securities and Futures Commission Ordinance

§ Protection of Investors Ordinance

§ Code on Unit Trusts & Mutual Funds

§ Code on Conduct for persons registered with the Securities and Futures Commission

§ Rules governing the Listing of Securities (if listed)

§ The Drug Trafficking (Recovery of Proceeds) Ordinance and the Organised and Serious Crime Ordinance are also relevant to the operations of funds as funds might be used to launder money arising from criminal activities as specified in the Ordinances

§ Code on Pooled Retirement Funds

§ Fund Manager Code of Conduct

§ Management Supervision and Internal Control Guidelines for persons registered with, or licensed by the SFC

§ Guidance Note on Internet Regulation

§ Guidance Note on the Application of the Electronic Transactions Ordinance to Contract Notes

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§ Guidance Note for Persons Advertising or Offering Collective Investment Schemes on the Internet (will be issued after consultation)

§ Guidelines for Registered Persons Using the Internet to Collect Applications for Securities in an Initial Public Offering (“IPO”)

§ Mandatory Provident Funds Schemes Ordinance

§ SFC Code on Mandatory Provident Fund (“MPF”) products

§ Guidelines for Review of Internal Controls and Systems of trustees/custodians

§ Fit and Proper criteria

§ Registration Guidelines for intermediaries advising on securities incidental to the marketing of MPF schemes only

Capital adequacy requirements Investment restrictions Foreign funds

The Financial Resources Rules have been revised with effect from 12 June 2000. The principal change affecting fund managers registered as investment advisers with the SFC is that they are now required to maintain net tangible assets of at least HK$500,000. Please refer to the SFC web site for details.

Investment association

§ Hong Kong Investment Funds Association http://www.hkifa.org.hk/

Other developments

Updates of rules, regulations and codes

§ On 24 July 2000, the SFC released the Guidelines for Registered Persons Using the Internet to Collect Applications for Securities in an IPO. These are intended to provide guidance to registered persons who use the Internet to collect applications from their clients or the public for securities in an IPO.

§ On 28 July 2000 the SFC announced changes to the Client Identity Rules contained in the SFC’s Code of Conduct and Client Identity Rule Policy, and the approval of corresponding changes to the Rules of the Stock Exchange of Hong Kong Limited (“SEHK”), the Options Trading Rules of the SEHK and the Rules of the Hong Kong Futures Exchange Limited (“HKFE”).

The original Client Identity Rules required all intermediaries registered with the SFC and/or Exchange Participants to obtain and record information about the ultimate originators and beneficiaries of transactions before such transactions were processed, whether the transactions related to listed securities or futures contracts traded in Hong Kong or overseas. The changes will lighten the regulatory burden on intermediaries by excluding financial products that are solely traded overseas from the scope of the Client Identity Rules.

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§ On 15 August 2000, the SFC published a “Guidance Note on the Application of the Electronic Transactions Ordinance to Contract Notes”. With the enactment of the Electronic Transactions Ordinance (“ETO”), it is now possible for dealers to issue electronic contract notes.

The key points of the Guidance Note are:

- Contract notes are acceptable in electronic form for most transactions in securities, futures and leveraged foreign exchange trading.

- Dealers must remember that the client must consent to the contract note being in electronic form.

- When delivering or retaining originals and copies, dealers must ensure that the provisions of the ETO and the other relevant ordinances are complied with.

§ On 24 November 2000, the SFC published a draft Guidance Note for Persons Advertising or Offering Collective Investment Schemes on the Internet. The Guidance Note aims to clarify the SFC’s expectations about the marketing and offering of collective investment schemes on the Internet and to ensure that investors who invest over the Internet have access to all the information they need to make an informed choice.

Market developments

§ On 26 July 2000 the SFC released for consultation a paper proposing the relaxation of certain Code of Conduct requirements for intermediaries serving professional investors. The paper also sets out the procedures to be followed, in identifying and advising professional investors about these changes. In modifying the requirements under the Code of Conduct as it applies to professional or sophisticated investors, the SFC wishes to facilitate the provision of services without unnecessary regulatory burden. There are certain areas in which the SFC considers it appropriate to assume that professional investors can, if they so choose, look after their own interests without the need for mandated protection through regulation.

§ On 27 September 2000, the SFC issued a consultation paper in relation to proposed revisions to its Code of Conduct for Persons Registered with the SFC (the “revised Code”).

The SFC released the original Code of Conduct for Persons Registered with the SFC (the “Code”) in 1994, and it was last updated in November 1999. The Code is used by the SFC to consider whether a registered person is or has been guilty of misconduct or is a fit and proper person to be or remain registered.

In connection with the merger of the SEHK and HKFE into Hong Kong Exchanges and Clearing Limited (“HKEx”), a new model for the division of regulatory functions between the SFC and HKEx has been adopted. In relation to market surveillance and intermediaries supervision, the SFC has generally taken over from the Exchanges the supervision of exchange participants’ conduct.

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The proposed revisions to the Code represent the incorporation of selected provisions currently contained in the rules of SEHK and HKFE into the Code, and the proposed addition of various new conduct rules (including provisions for registered persons conducting securities margin financing).

A joint exercise is currently being conducted by the SFC and HKEx to restructure the rules of the Exchanges and the clearing houses. The proposed revised Code aims to supplement related legislation, rules, codes and guidelines.

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India

Regulatory bodies

§ Reserve Bank of India http://www.rbi.org.in/

§ Securities and Exchange Board of India (“SEBI”) http://www.sebi.com/

Types of funds

§ Unit trusts

§ Mutual funds (both open and closed-ended)

Laws, rules, regulations and codes

§ Securities Contracts (Regulation) Act 1956

§ Securities and Exchange Board of India (Mutual Funds) Regulations 1996 (amended by SEBI in 1997, 1998 and 1999)

§ Reserve Bank of India Guidelines for Money Market Mutual Funds

§ Indian Trusts Act 1982 (requires that all funds are in the form of trusts)


No major changes from previous editions


§ Association of Mutual Funds of India (“AMFI”)

Other developments

Market developments

SEBI Initiatives

§ SEBI has issued the following significant guidelines vide its circular dated 18 September 2000:

- Guidelines for identification and provision of non-performing assets and guidelines for valuation of non-traded and thinly traded equity / equity related securities (effective from 16 October 2000); and

- Guidelines for valuation of non-traded and thinly traded debt securities (effective from 1 December 2000).

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§ SEBI will permit mutual funds to invest in mortgaged back securities. Until recently, mutual funds were permitted to invest only in certain other asset backed securities.

§ SEBI has increased the investment limit for closed ended funds in unlisted companies from 5% to 10%. The limit for open ended funds is still 5%.

§ SEBI has debarred mutual funds from placing advertisements showing short term returns or from holding lucky draws and distributing gifts.

§ AMFI has recommended that SEBI allows mutual funds to use unclaimed dividends/redemption proceeds left with funds for over 10 years towards investor awareness programs.

§ SEBI now permits mutual funds to invest in venture capital funds.

§ SEBI has released a new set of guidelines for mutual funds to cap their investments in illiquid and unlisted securities at 15%. The new set of guidelines has also been declared appropriate for the valuation of illiquid stocks for the computation of NAVs.

§ SEBI has directed all asset management companies (“AMCs”) to keep a record of all facts, data and opinions on the basis of which investment decisions are taken. The guidelines cover both initial and subsequent investments. The fund industry generally views these guidelines with concern. It is felt that they would lead to micro management of fund activities and leave room for regulators to question the investment decisions of the funds.

§ SEBI has outlined an advertising code/guidelines for the selling of funds through the press, TV, one to one meetings, broker conferences, etc. The fund houses feel that strict implementation of the code/guidelines will leave no room for innovative advertisements.

§ SEBI has advised the Trustees of mutual funds to set up Audit committees comprised of independent Trustees. The committees duties are to review the accounting and control issues arising out of fund operations and to ensure that adequate risk control systems exist.

§ SEBI has notified the content and frequency of reporting by AMCs to Trustees and prescribed detailed compliance formats.

§ The responsibilities of independent directors of Trustee companies and AMCs have been specified.

Acquisitions and new entrants

§ A 50% stake in Industrial Development Bank of India AMC was acquired by the Principal Financial Group of the United States of America. The AMC is being re-organised and intends to launch new products soon.

§ Two new players, Housing Development Finance Corporation and ANZ Grindlays, recently entered the market.

§ ABN Amro, Citibank and HSBC are expected to set up their own AMCs soon and to launch mutual fund products.

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Products

§ During the past six months, more mutual funds have launched Technology, Gilt Balanced and Monthly Income Products. The features of these products are very similar to those which were already in the market at the time of their launch. An Index Fund was launched by one of the mutual fund houses.

§ With dividends now being tax exempt in the hands of investors, mutual funds have introduced weekly dividend options under their Liquid/Money Market Fund. Funds have also been declaring dividends under Gilt/Income plans at Quarterly/Half yearly rests. Dividends under equity plans are also being distributed more than once a year.

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Indonesia

Regulatory body

§ The Capital Market Supervisory Agency (Bapepam) http://www.bapepam.go.id, an arm of the Ministry of Finance, supervises the securities industry.

Types of funds

§ Open or closed-ended mutual funds can be in the form of collective investment agreements (known as Kontrak Investasi Kolektif) or limited liability companies (known as Perseroan Terbatas).


§ The capital market and mutual funds are regulated by the Capital Market Law (Law No. 8/1995).

§ The Indonesian Company Law (Law No. 1/1995) regulates limited liability companies (which include mutual funds in company form). Only companies registered under this law are allowed to be mutual funds in Indonesia.



Investment associations

§ Association of Investment Managers

Other developments


§ Several regulations were issued by Bapepam during the second half of 2000, which mostly relate to administration processes as well as information to be disclosed in respect of corporate take-overs, tender offers, warrants and rights issues, material transactions and changes in business lines of public companies.

Market developments

§ Stock exchange trading volumes and values continued to decrease in the second half of 2000, following continuous political instability and social unrest in some of the provinces in Indonesia. Stock exchange transactions were dominated by local investors.

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Trading update

§ Following a significant decrease in stock prices, the Jakarta Stock Exchange announced some essential regulations with respect to stock trading:

- An increase in the number of shares per lot of the trading stock of publicly listed banks: previously 500 shares per lot, now 5000 shares per lot.

- A decrease in the trading price update, which was previously Rp. 25 per increase/decrease, and is now Rp. 10.

§ A breakthrough in technology has enabled some of the Jakarta Stock Exchange members to allow their customers to trade stocks through the internet.

§ Scripless trading has been implemented for four issuers starting on 11 July 2000.

§ A new structure has also been introduced by the Jakarta Stock Exchange whereby equity listing can be done either through the primary board or the development board. The latter has significantly fewer and less onerous requirement than the main board.

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Japan

Regulatory bodies

§ Financial Services Agency http://www.fsa.go.jp/

The Financial Reconstruction Commission (“FRC”) was merged with the Financial Services Agency (“FSA”) on 6 January 2001 and the FSA took over the operation of the bankruptcy settlement management of FRC.

§ Securities and Exchange Surveillance Commission http://www.fsa.go.jp/sesc/sesc-e.html

§ Ministry of Finance http://www.mof.go.jp/

§ The Ministry of Health, Labour and Welfare http://www.mhlw.go.jp/ oversees Employee Pension Funds

The Ministry of Health and Welfare merged with The Ministry of Labour on 6 January 2001.

Types of funds

§ Open and closed-ended

- Contractual type

- Company type


§ Securities and Exchange Law (“SEL”)

§ Investment Trust and Investment Company Law

§ Rules of the Ministerial Ordinance pursuant to the SEL Concerning Disclosure of Specified Securities

§ Investment Advisory Law

§ Self-regulatory rules set by The Investment Trust Association http://www.toushin.or.jp/ (The name of the association was changed from The Securities Investment Trust Association in November 2000) and The Japan Securities Investment Advisers Association http://www5.mediagalaxy.co.jp/jsiaa/.

Capital adequacy requirements Investment restrictions

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Foreign funds


Other developments

Market developments

§ As at November 2000, there was approximately 51 trillion yen in investment trust management funds as follows:

Equities 15 Bonds 23 Money market funds 13 51

§ The Japanese 401k plan (defined contribution pension plans) was originally planned to be introduced in Autumn 2000, but it will be further delayed.

§ The Investment Trust and Investment Company Law and “the SPC law” were revised in November 2000 to allow investment trust funds to invest in real estate.

§ Master-trust schemes for pension funds will be introduced shortly. In the Japanese context, a master trust is defined as the function of a trustee to provide various services to a particular pension fund and to administer all of the money (within the fund) allocated to several fund managers. Such a function can include custody of securities held by the fund, book-keeping, settlements, corporate actions, performance analysis, security lending activities, cash management, compliance monitoring (compliance with the investment policy), risk management, foreign exchange overlay, etc. Alliances between trust banks are being established in the expectation that they will be able to act as trustees and manage individual funds following the changes. Following the trend, Mitsubishi Trust Bank, Nippon Life Insurance Company, etc. incorporated The Master Trust Bank of Japan in May 2000 and Daiwa Bank and Sumitomo Trust Bank incorporated Japan Trustee Service Bank in June 2000, with Chuo Mitsui Trust Bank to join in 2002. Mizuho Financial Group is also planning to organise a trust company for master trust operations.

§ The evaluation method of medium term bond funds (Chukoku Funds) will be changed from the book evaluation method to the mark-to-market evaluation method in April 2001 based on the implementation of mark-to-market accounting in Japan.

§ All investment trust funds currently being offered to the public for sale are now subject to external audit, after the transition period ended on 30 November 2000.

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Malaysia

Regulatory bodies

The Securities Commission (“SC”) http://www.sc.com.my

§ has assumed, from 1 July 2000, the regulatory functions previously carried out by several bodies relating to all fund raising activities, as a result of amendments made to the Securities, Company and Banking Acts;

§ through the Securities Commission (Amendment) Act 2000, has become the sole regulator of corporate bonds, a function previously held by the central bank, Bank Negara Malaysia;

§ has also assumed the central bank’s role as the approving authority for the issuance of private debt securities (“PDS”), including the registration of prospectuses relating to the issues; and

§ has assumed new authority to register and approve listings and other prospectuses, which previously came under the purview of the Registrar of Companies.

Types of funds

§ Investment company

§ Closed-ended fund

§ Unit trust scheme


§ Securities Industry (Central Depositories) Act 1991

§ Securities Commission Act 1993

§ Futures Industry Act 1993

§ Securities Commission (Amendment) Act 1995

§ Securities Industry (Amendment) Act 1996

§ Guidelines on Unit Trust Funds

§ Guidelines on Reporting Requirements for Fund Managers

§ Guidelines on the Establishment of Foreign Fund Management Companies

§ Guidelines for Public Offerings of Securities of Closed-ended Funds

§ Practice Notes - Guidelines on Unit Trust Funds (in Malaysian Code on Take-overs & Mergers - Practice Notes)

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§ Banking and Financial Institutions Act 1989 (BAFIA)

§ Companies Act, 1965

§ Companies (Amendment) Act 2000

§ Securities Commission (Amendment) Act 2000


Revisions to the Foreign Fund Management Companies Guidelines (“FFMC”) have been made to reflect policy changes and developments that have occurred in the financial markets recently. In addition, the SC has restructured and reformatted the FFMC Guidelines and also clarified and amplified certain clauses for easy reading and reference.

In making these revisions, the SC has taken into consideration comments and suggestions made by relevant market participants from the fund management industry. The revised FFMC guidelines are available at the SC’s homepage (http://www.sc.com.my).


§ Federation of Malaysian Unit Trust Managers

Other developments

Consequent to its new role as the single regulator of all fund raising activities, the SC has introduced the following new guidelines, regulations and practice notes with effect from 1 July 2000:

§ Private debt securities

- Guidelines on the Offering of Private Debt Securities

- Guidelines on Prospectus Content for Debentures

- Securities Commission (Shelf Registration Scheme for Debentures) Regulations 2000

- Guidelines on Minimum Content Requirement for Trust Deeds

§ Equities

- Guidelines on Prospectuses for Equity and Equity-linked Issues

§ Unit trust schemes

- Practice Note 10 - Holding of Units by a Management Company-Sales of Units under Skim Pelaburan Ahli KWSP

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- Practice Note 11 - Minimum Covenant Requirements and Procedures for Registration and Lodgement of Deeds of Unit Trust Funds

- Practice Note 12 - Prospectus Guidelines for Unit Trust Funds

- Practice Note 13 - Guidelines on Unit Trust Advertisements and Promotional Materials

- Practice Note 14 - Amendments to the Guidelines on Unit Trust Funds with the coming into force of the Securities Commission (Amendment) Act 2000

In addition to the above, the SC has relaxed certain requirements for chain listing and the par value of ordinary shares for primary listing. This has been done through amendments to the relevant provisions of the SC’s Policies and Guidelines on Issue/Offer of Securities (“Issue Guidelines”) and the Guidelines for Public Offerings of Securities of Infrastructure Project Companies as well as the Malaysian Exchange of Securities Dealing and Automated Quotations Listing Rules. The revisions are depicted in the table below:

NEW OLD

Cap on 50% contribution to consolidated after-tax profit and NTA lifted

Companies contributing 50% or more to the listed holding company’s after-tax profit or NTA cannot be listed

No requirement for listed holding company to meet listing requirements on its own

The listed holding company must on its own meet listing requirements as for a new company seeking listing

Holding company must have separate autonomous business either directly or indirectly through other unlisted subsidiaries

Demonstration of independence between group companies

A subsidiary acquired through a reverse takeover or a backdoor listing cannot be listed

The subsidiary/associated company to be listed must be involved in a distinct and viable business of its own

A subsidiary failing to fulfill historical profit track record cannot be listed (with exceptions)

Listing should not give rise to intra-group competition or conflict of interest

Minimum par value of company seeking listing is not less than 10 sen per share

Minimum par value of company seeking listing is not less than RM1 per share

Market developments

§ Utilisation of Proceeds from Issuance of Private Debt Securities

The SC announced, on 30 June 2000, the following circumstances where the utilisation of proceeds from the issuance of PDS will not be permitted:

- (a) Development of the following properties:

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(i) Residential properties and shop houses where an individual unit costs more than RM250,000 each, except where the development is located in Sabah or Sarawak; and

(ii) New hotels, resorts, office buildings, golf courses, clubs and shopping complexes.

(b) Where mixed property development is involved, the proceeds from the issue of debentures must strictly be used to finance the development of properties other than those stated in paragraph 1(a).

- For non-resident controlled companies, additional restrictions are imposed on the following activities:

(a) construction and development of office, commercial and hotel buildings and golf courses (for both new financing and refinancing);

(b) purchase of land and buildings for rental and speculative activity;

(c) purchase of shares; and

(d) gaming activities.

§ Flexibility in Issuance of Shares

Although there are no specific prohibitions in the SC’s Issue Guidelines barring the issuance of convertible loan stocks at nominal values of less than RM1, the SC has, in practice, only approved the issuance of convertible loan stocks by listed companies based on nominal values of RM1. However, recently the SC has decided, as a matter of policy, to allow the issuance of convertible loan stocks under the following principles:

- the convertible loan stocks are to be issued as part of a restructuring exercise;

- the convertible loan stocks are to be issued on a rights basis to all shareholders;

- the directors and promoters who are recipients of the convertible loan stocks under a rights issue exercise are not allowed to sell them within one year from the date of listing of the loan stock;

- the listed company should strictly comply with the shareholding spread requirements of the Kuala Lumpur Stock Exchange;

- the nominal value of the convertible loan stocks should be based on a denomination which will translate into a convenient and even ratio;

- the convertible loan stocks are to be issued in lots of 1000 units;

- the convertible loan stocks are only exchangeable into ordinary shares of the listed issuer based on the par values of the listed issuer’s shares;

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- a security-exchange mechanism or “no-cash option” should be made available as a conversion mode for the convertible loan stocks;

- warrants are not to be attached the convertible loan stocks; and

- adequate disclosure is to be made by the listed company of the fact that the convertible loan stocks are issued at nominal values of less than RM1.

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Pakistan

Regulatory bodies

§ Securities and Exchange Commission of Pakistan http://www.secp.gov.pk

Types of mutual funds

§ Open-ended mutual fund

§ Closed-ended mutual fund


§ The Securities and Exchange Ordinance 1969

§ The Investment Companies and Investment Advisers Rules 1971 (The Rules)

§ The Companies Ordinance 1984

§ The Asset Management Companies Rules 1995

§ The Companies (Issue of Capital) Rules 1996

§ The Securities and Exchange Commission of Pakistan Act 1997

Capital adequacy requirements Foreign funds Investment associations

No changes from previous editions

Other developments

Market developments

§ Foreign investors are allowed to operate freely in the capital market.

§ There are no restrictions on the extent of foreign ownership of local companies. However, as per the World Trade Organisation, the permission of the State Bank (central bank) is required if it is desired to transfer 5% or more of the shares of any bank or financial institution. There is no limit for holding the shares for trading purposes.

§ Bonus shares (units) are exempt from tax until 30 June 2001.

§ There is no capital gains tax on listed securities until 30 June 2001.

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People’s Republic of China (“PRC”)

Regulatory body

§ The China Securities Regulatory Commission (“CSRC”) http://www.csrc.gov.cn/

Types of funds

§ Closed-ended funds which can only invest in stocks listed on PRC exchanges and PRC government bonds


The principal laws, rules and regulations governing the investment fund industry in the PRC are:

§ Provisional Measures of the Administration of Securities Investment Funds

§ Implementation rules of the Provisional Measures of the Administration of Securities Investment Funds

§ Securities Investment Funds Listing Rules on Stock Exchanges

§ Securities Law

The CSRC has also issued a number of rules, regulations and notices relating to the management and operation of China’s investment fund market.



Other developments

Market developments

§ At present, direct foreign participation is prohibited in China’s investment fund management industry. Upon WTO accession, foreign fund management companies are expected to be permitted to hold a stake of up to 33% joint venture ownership in PRC fund management companies, rising to 49% in three years.

§ In mid January 2001, a German-based financial institution reached a sino-foreign technical cooperation agreement for fund management with a Shanghai-based securities house. This followed similar tie-ups by four UK and US financial institutions with mainland China fund management partners over the past six months, in an effort to tap into China’s vast domestic savings of over USD 750 billion when the market is opened up.

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§ All existing funds in China are closed-ended. As of 31 December 2000, there were 33 closed-ended funds listed on the Shanghai and Shenzhen stock exchanges with a total market capitalisation of approximately USD 10 billion. This compares with the total market capitalisation of China’s stock markets at that date of USD 580 billion.

§ The government has been encouraging the development of open-ended funds which have no limit in size and are expected to help boost market liquidity. On 8 October 2000, provisional rules for the establishment of open-ended securities investment funds were issued by CSRC. The rules are regarded by some market practitioners as being more flexible than the existing rules for closed-ended funds. They also permit fund management companies to charge a fee of up to 5% on purchases and 3% on redemptions. Formal legislation for open-ended funds is currently being drafted and is expected to be promulgated after China’s WTO entry later in 2001.

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The Philippines

Regulatory bodies

§ The Securities and Exchange Commission (“SEC”) http://www.sec.gov.ph is the regulator and licensing body for mutual funds.

§ The Bangko Sentral ng Pilipinas (“BSP”) http://www.bsp.gov.ph, is the regulator of common trust funds.

Types of funds

§ Open and closed-ended mutual funds of investment companies

§ Common trust funds established by banks and other authorised financial institutions


§ Code of Conduct for traders and salesmen implemented by the Philippine Stock Exchange (“PSE”) http://www.pse.org.ph/

§ Securities Regulation Code of 2000

§ The Investment Company Act

§ The Corporation Code of the Philippines

§ The Financing Company Act

§ The Partnership Law

§ The Investment Houses Law

§ The Omnibus Investments Code as amended by Republic Act No. 8756

§ Republic Act No. 8791 otherwise known as The General Banking Law of 2000

§ Foreign Investments Act

§ New Retail Trade Act

§ New Electronic Commerce Act


§ Allowable foreign ownership in domestic banks has been slightly increased.

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§ Foreign ownership in retail stores is now allowed provided that the minimum paid-up capital is at least US$2.5 million.

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§ Investment Company Association of the Philippines

§ Fund Managers Association of the Philippines

Other developments


§ The Fourth Regular Foreign Investment Negative List has been issued. This list enumerates the allowable percentage of foreign equity for certain areas of investments.

§ Investments paid for in foreign currency are now allowed by the SEC to remain in foreign currency but should be converted to Philippine Pesos if the foreign stockholders want them to be registered with the BSP.

§ Up to 25 March 2002, foreigners can engage in retail trade provided that the paid-up capital of the company is at least US$7.5 million. After 25 March 2002, the capitalisation requirement will be reduced to US$2.5 million. Prior to 25 March 2002, foreign ownership is limited to 60% if the capitalisation of the company is between US$2.5 million to US$7.5 million.

§ The Implementing Rules to the Securities Regulations Code of 2000 were issued last December:

- Under the Securities Regulation Code of 2000, the SEC lost its powers to hear and decide corporate disputes. This power is now vested in the regular courts.

- Stockbrokers are accountable for executing orders which violate Sec 24 of the Code. This provides that it is unlawful for any person to make a bid or offer or deal in securities if such bid has the effect or is likely to have the effect of creating a false or misleading appearance of active trading in any security.

§ The Implementing Regulations to the law (R.A. No. 8756) amending the Omnibus Investments Code (E. O. No. 226) have recently been issued. They clarify the procedures and incentives for establishing Regional Operating Headquarters in the Philippines (by multinational companies).

Market developments

§ The PSE has taking its first step towards its demutualisation as the Australian Agency for International Development (AusAid) submitted last November its valuation of the local bourse. The PSE is looking at the Australian model in fleshing out a plan to convert itself into a demutualised stock organisation as mandated by the Securities Regulations Code.

§ The SEC has deferred the imposition of the P50 million paid-up capital requirement on brokers and dealers pending the demutualisation of the PSE in August 2001.

§ The PSE has issued a new policy allowing listed companies to acquire up to 10% of their own issued and outstanding capital stock in the market.

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Singapore

Regulatory body

§ The Securities and Futures Department of the Financial Supervision Group of the Monetary Authority of Singapore (“MAS”) http://www.mas.gov.sg/ is responsible for supervising the investment management sector.

Types of funds

§ Unit trusts (open or closed ended)


§ Trust Companies Act, Cap. 336

§ Trustee Act, Cap. 337

§ Listing Manual of the Stock Exchange of Singapore http://www.ses.com.sg/

§ Companies Act, Cap. 50

§ Companies Regulations 1987

§ MAS Guidelines and Practice Directions

§ Securities Industry Act and Regulations

§ Banking Act, Cap 19

§ Central Provident Fund Regulations and Guidelines




§ Investment Management Association of Singapore (“IMAS”) http://www.imas.org.sg/

Other developments


§ Guidelines on capital guaranteed funds were issued in October 1999. Details of the guidelines are available on the MAS web site under Status, Regulations and Notices.

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Market developments

§ There has been increasing pressure on front-end fees on public unit trusts, resulting in no front load type funds starting to appear.

§ New “e-distribution” channels have begun appearing for the sale of unit trusts through independent companies not linked to financial institutions.

§ Global Investment Performance Standards are being discussed by IMAS for possible adoption in Singapore.

§ Regulations governing the unit trust industry have been under review by the authorities and major changes are expected so as to harmonise the regulations with international best practice.

§ Investment restrictions have been relaxed by the Central Provident Fund (“CPF”) allowing CPF members to place monies from their special accounts in certain unit trust products.

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South Korea (Republic of Korea)

Regulatory bodies

§ Financial Supervisory Commission http://www.fsc.go.kr/english/english.htm

§ Financial Supervisory Service http://210.95.55.198/eintro.asp

Types of funds

§ Unit trusts

§ Closed ended investment trust companies

§ Semi-open mutual funds


§ Securities and Exchange Act which regulates the offer and sale of securities

§ Securities Investment Trust Business Act (“SITBA”)

§ Securities Investment Company Act

§ Guidelines for the Domestic Sale of Beneficial Certificates of Foreign Investment Funds




§ Korea Investment Trust Companies Association

Other developments

Market developments

§ Pursuant to the SITBA, Internal Control Standards should be formally established, and more than one Compliance Officer, who must report to the statutory auditor or the Audit Committee, should hold office.

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Sri Lanka

Regulatory body

§ Securities and Exchange Commission (“SEC”) http://www.sec.lk/

Types of funds

§ Unit Trusts (open-ended)


§ Securities and Exchange Commission Act No. 36 as amended in 1991

§ Unit Trust Code 1995

Capital adequacy requirements Investment restrictions Foreign Funds

§ The requirement for brokers to have a minimum net capital of Sri Lankan Rs. 15 million by 2001 has been waived and the current limit of Sri Lankan Rs. 11 million is being maintained.

§ The following relaxations on foreign ownership have been announced in the current year’s budget:

Revised Maximum % Equity Holding

Banking (Note 1) 60

Insurance (Note 1) 90

Stock Broking Firms licensed by the SEC (Note 2) 100

Note 1 - Subject to standard regulatory requirements as set out in the Banking and Insurance statutes.

Note 2 - Enhanced equity stakes are limited to companies which have a credible international reputation, are regulated in the country of registration and have a proven record of successful trading and sales turnover.

Further, non-residents are now permitted to invest in equity/growth Unit Trusts, provided the underlying trust deed does not permit more than 20% of the Trust Fund to be invested in Government securities.


§ Sri Lanka Association of Securities and Investment Analysts

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§ The Unit Trust Association

Other developments

Changes made to the listing rules for both equities as well as debt securities.

§ Listing requirements for equities

Main Board

- Issued and paid up capital of Sri Lankan Rs.75 million

- Profit record for at least 3 preceding years

Second Board

- Issued and paid up capital of Sri Lankan Rs. 5 million

- No past profit record is required, even new companies can be listed on the second board

- Requirement for a minimum of 50 shareholders has been removed

Public Holding

Knowledge of trade practices of various industries

- Public holding requirement of 25% for main board and 10% for second board companies has been removed.

- Public holding requirement as a continuing listing obligation has also been removed.

Private Placements

- The Colombo Stock Exchange (“CSE”) will accept a listing application one year in advance of the listing date from companies who wish to make a private placement at a lower price than the price to be offered to the public at the initial public offering. The company will have to disclose details of such private placement in the prospectus.

Non Voting Shares and Preference Shares

- These will be approved for listing only if shares, which enjoy voting rights, are already listed on the Exchange.

- The limits imposed on the issue of non-voting shares and preference shares in the listing rules have been removed.

§ Listing Requirements for Debt Securities

Main Board

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- Have to conform to one of the following criteria:

(a) Obtain Investment Grade Rating from an approved Credit Rating Agency;

(b) Obtain Bank Guarantee for repayment of capital and interest; or

(c) Ensure debt securities are secured against collateral.

- Conformation of specified debt/shareholder funds ratio and specified return on investment on shareholders’ funds and the requirement for a capital redemption fund have been removed.

- The requirement of a 50% public holding and a minimum size of Rs.50 million for a public offering have been removed.

Second Board

- A second board for debt securities has been introduced.

- The only requirement to list debt securities on the second board is for companies to have been in business for a period of three years.

§ Sponsors of Listing Applications

- Companies may have their listing applications sponsored by any institution that is registered as a sponsor with the CSE.

§ Allotment of Securities

- It will not be necessary for companies to seek the concurrence of the CSE as to the basis of allotment. Companies are required to ensure that allotment is made fairly.

§ Underwriting

- The mandatory requirement for underwriting has been removed. Companies are now required to state in the prospectus what action will be taken in the event of under subscription.

§ Cost

- It is expected that the introduction of the new listing rule will reduce costs of IPOs to approximately 3%. This is brought about by the following:

- Waiving the quotation fee at the IPO stage;

- Removing the requirement for a public float and the corresponding underwriting requirement;

- No need for statutory advertisement in the newspapers; and

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- Commissions to brokers and bankers on IPOs range between 0.5% for issues over Rs. 200 million and 1.5% for issues under Rs. 100 million.

§ Investment Company Rules

- Rules pertaining to restrictions on the business activities of Investment Companies have been removed.

§ Employees Share Ownership Proposals (“ESOPs”)

- Rules restricting ESOPs have been removed.

§ Default Board

- New rules provide for a listed company that fails to meet the continuing listing requirements of the CSE will be transferred to the default board.

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Taiwan

Regulatory body

§ The Securities and Futures Commission (“SFC”) http://www.sfc.gov.tw/e-sfc/e-index.htm is the primary regulator of the securities market and is under the close control of the Ministry of Finance.

Types of funds

§ Mutual funds (open or closed-ended)

§ Unit trusts (open or closed-ended)


§ The Securities Exchange Law is the main source of securities regulation

§ The Securities Management Law

- Rules Governing the Administration of Securities Investment Trust Enterprises

- Regulations Governing the Management of Securities Investment Trust Funds

§ The Statute for Investment by Overseas Chinese

§ The Statute for Investment by Foreigners

§ Regulations Concerning Investment in Securities by Overseas Chinese and Foreigners

§ The Overseas Chinese and Foreigners Investment in Securities and Foreign Currency Remittance Rules

§ The Regulations Governing Securities Investment by Overseas Chinese and Foreign Investors and Procedures for Remittance

§ Guidelines for Overseas Chinese and Foreigners to Apply for Investment in the Taiwan Securities market

§ The Bank Law, Chapter 6 (Investment Trust Company) Regulations


No major changes from previous editions except the following:

§ The maximum investment quota for each qualified financial institutional investor (“QFII”) was raised from US$1.2 billion to US$2 billion, effective on 21 November 2000. Also, any individual

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investment fund or individual is allowed to take a 75% stake in a listed company, up from the current 50%.

§ For investors other than QFIIs, applications should be filed with the Taiwan Stock Exchange. This class of investors is sometimes referred to as non-QFIIs. The investment quotas for each non-QFII are US$5 million for natural persons and US$50 million for institutional investors.

§ Insurance companies may take a 10% stake in a company, up from the current 5%, and they are now allowed to invest in security trusts, consulting businesses and publicly owned land development projects, which was previously prohibited.

§ Securities companies are now allowed more options in handling margin positions so they do not necessarily have to liquidate the account.


§ Securities Investment Trust and Advisory Association

Other developments

§ Effective from 30 August 2000, the letter of declaration filed by qualified foreign institutional investors has been categorised into five distinct formats, i.e. banks, insurance companies, fund management institutions, securities firms and other investment institutions respectively.

§ Effective 2 November 2000, simplified documentary requirements were introduced for the first time QFIIs filing an application form to get approval to invest in the Taiwanese market.

§ The SFC approved on 4 November 2000 “The Operation of Discretionary Investment Service by Securities Investment Consulting Companies and Securities Investment Trust Companies of the Investment Trust, Investment Consulting Association, ROC.”

§ The Financial Institutions Merger Law was passed on 24 November 2000. The government is now planning to reclassify Asset Management Companies as financial institutions making them eligible for the recently instituted zero tax on financial institutions’ business revenues. They would also be eligible for five-year tax write-offs on losses related to acquisitions of domestic financial institutions by permitting a merged financial institution to deduct from its income taxes accumulated income losses of the combined institutions going back five years. Also, once the Financial Holding Company Draft has been passed, it will permit financial groups in Taiwan, domestic or foreign, to consolidate their subsidiaries and concentrate their shareholdings among diverse businesses, i.e., banking, brokerage and insurance. Cross shareholdings within a group, i.e., a subsidiary holding its parent company’s shares, would be prohibited. Financial Holding Companies would be able to list on the Taiwan Stock Exchange or OTC Exchange if listing criteria are met. As a complement to the Financial Institutions Merger Law, the Financial Holding Company Law as drafted would encourage consolidation within the banking industry.

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Thailand

Regulatory bodies

§ The Securities and Exchange Commission (“SEC”) http://secwww.sec.or.th/ is responsible for administering and controlling the securities business.

§ The Fund Management Supervision Division of the SEC is responsible for formulating measures to supervise companies holding mutual fund management licences, private fund management licences and investment advisory services licences.

§ The Bank of Thailand http://www.bot.or.th (if the fund was established before the SEC Act was announced)

Types of funds

§ Open-ended fund

§ Closed-ended fund


§ The Securities and Exchange Commission Act 1992 (SEC Act)

§ The Civil and Commercial Code is the main source of company law

§ The Revenue Code




§ Association of Investment Management Companies

§ Provident Funds Association

Other developments

Market developments

§ On 8 September 2000, the SEC approved the liberalisation of brokerage commission fees as proposed by the Stock Exchange of Thailand (“SET”) with effect from 1 October 2000. Brokerage commission fees for the trading of listed securities can now be fully negotiated.

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§ On 24 October 2000, the SET announced the inauguration of SETTRADE.COM Co Ltd, to develop a trade information technology system and central website. This new company will provide securities companies investors with internet securities trading services to enhance trading efficiency and reduce securities companies’ overall operational costs. The newly established company has completed its organisational setup and supporting network development, and started to receive orders from investors and securities companies via its new website www.SETTRADE.COM on 3 November 2000.

§ The SET has revised the calculation method for determining total market capitalisation, taking derivative warrants and unit trusts out of the calculation, in order to reflect the value of all listed securities more accurately and to be more in accordance with international standards. This new method became effective from 6 November 2000 onwards.

§ On 8 December 2000, the SEC gave permission for securitie s companies to conduct 6 more types of business in order to generate more income and reduce costs. These businesses are as follows:

- Full financial services provider:

Securities companies are permitted to provide full financial services to clients, by acting as a co-ordinator between other financial institutions and clients. Besides fund management and securities brokerage services, securities companies many oversee client’s deposit and credit card accounts as well as act as an introducing agent for foreign currency exchange.

- Provide brokerage services for non-securities instruments:

Securities companies with securities brokerage license can also offer brokerage services including buying, selling, exchange or transfer of non-securities instruments.

- Provide investment advisory or data provider services:

Securities companies are able to advise or provide data about other financial service providers and about financial services provided by commercial banks or financial institutions. Securities companies are also able to act as agents to facilitate clients’ contact with financial institutions or commercial banks.

- Provide advisory or supporting services for other companies (including securities companies or non-securities companies).

- Accept income from advertisements on websites owned by securities companies.

- Represent clients as bidder in auctions of non-securities assets or as organiser of securities or non-securities auctions.

In addition, the SEC approved the provision by mutual fund management companies and newly established limited companies or newly established public limited companies of the above services (except for item 2).

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Vietnam

Regulatory body

The State Securities Commission is the government body responsible for authorising securities investment funds in Vietnam.

Types of funds

§ Open ended fund

§ Closed ended fund


§ Decision 128/1998/QD-UBCK5 on the organisation and operation of the Vietnam Stock exchange

§ Decision 139/1999/QD-TTg on the percentage of foreign participation in the Vietnam Stock exchange

§ Circular 01/1999/TT-UBCK1 guidelines for foreign participation

§ Decision 04/1999/QD-UBCK1 on regulations for membership, listing, information disclosure and stock transactions

§ Decision 05/1999/QD-UBCK1 on regulations for securities custody, clearance and registration

§ Circular 01/2000/TT-UBCK1: temporary guideline for customer service charges by securities companies

§ Decision 26/2000/QD-UBCK2 on the selection of independent auditors for securities companies



Other developments

Market developments

§ A stock trading centre in Ho Chi Minh City was opened on 20 July 2000. Currently, 5 companies are listed.

§ At the end of December 2000, more than 450 state-owned enterprises had sold their shares through an equitisation programme. Of these, more than 60 percent had sold over two-thirds of their shares to non-state shareholders.

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§ Following amendments and additions to the Law on Foreign Investment in Vietnam, which was passed by the National Assembly on 9 June 2000, with effect from 8 November 2000, foreign-invested enterprises and foreign parties in business cooperation contracts are entitled to buy foreign currencies at authorised banks to conduct their current transactions and other allowable transactions in accordance with the relevant regulations on foreign exchange controls.

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