KUALA LUMPUR: Friday, 14 January 2011 12:09
Olympia Industries Bhd and Kretam Holdings Bhd — announced that their standalone stockbroking units had received the Securities Commission’s (SC) nod to undertake activities accorded to a 1+1 stockbroking company.
They were given the 1+1 status, which allows them to open branches, provide electronic access facilities and undertake structured products offerings, without having to conduct a merger with another player.
According to both companies’ announcements, the approvals given to Jupiter Securities Sdn Bhd and Innosabah Securities Bhd, owned by Olympia and Kretam respectively, were provided under the Alternative Mechanism to Fulfilling the Consolidation Requirement Under the Policy Framework for Stockbroking Industry Consolidation.
In a reply to queries by The Edge Financial Daily recently, a SC spokesperson said the “alternative mechanism” represented the conclusion to the Consolidation Policy that was initiated in April 2000.
Standalone brokers can now get 1+1 status with access to more revenue-generating ops.
While the alternative mechanism is not a new policy, this is the first time that the SC has actually utilised the mechanism to give a lift-up to standalone stockbroking firms, which had failed to undertake a 1+1 merger as per the SC’s initiatives 10 years ago and thus had been left out of the opportunities to expand their business via opening more branches.
“This will effectively enhance the value of these stockbroking companies, as they now have access to more revenue-generating operations without having to pay premium in acquiring another standalone stockbroking company,” an industry observer said, adding that some of these standalone stockbrokers now stand a better chance of attracting suitors from abroad.
The alternative mechanism was seen as a second chance for standalone broking firms. Currently, only six standalone stockbroking companies remain in the country. They are BIMB Securities Sdn Bhd, FA Securities Sdn Bhd, Innosabah, Jupiter Securities, Malacca Securities Sdn Bhd and SJ Securities Sdn Bhd.
Some of these firms had attempted mergers previously. In 2001, Jupiter Securities was in talks to acquire Innosabah to tap into the Sabah equities market. However, the agreement lapsed in 2002.
There are 26 non-bank backed “capital market intermediaries” currently. These comprise one universal broker (PM Securities), six 1+1 brokers (including TA Securities, Interpacific Securities and Apex Securities), six standalone investment banks (including OSK Investment Bank and Kenanga Investment Bank), seven foreign stockbroking outfits (such as CLSA, UBS and JP Morgan), and six standalone brokers.
However, there are certain criteria that standalone brokers would have to meet for the 1+1 status to be accorded.
The SC spokesperson said the alternative mechanism required standalone stockbroking companies to commit investments to strengthen their operational framework and to contribute to an industry development fund. The regulator, however, was mum on the amount of funds that these brokerage outfits are required to commit.
The brokers are required to allocate a budget to enhance the current front office system by investing in a new order management system within three years of the development plan. This is to strengthen these firms’ operation framework and promote investment in the stock market.
The SC would only formally recognise their 1+1 status when all the conditions are met.
Standalone brokers were required to have a minimum paid-up capital of RM20 million and shareholders’ funds of RM20 million. Nonetheless, their expansion was capped as they were not allowed to open branches or offer other products and services apart from broking activities.
Since 2000, some of the stockbroking companies such as OSK and Kenanga had moved on to become full-fledged investment banks, which require an even higher minimum paid-up capital of RM500 million. Fast track into 2011, firms like OSK not only have operations in Malaysia but is known as a regional financial services firm with branches in Singapore, Hong Kong and Indonesia.
“No doubt standalone brokers had avoided paying a steep premium for the 1+1 status. But as they were unable to expand over the last 10 years, they have lost a lot of business opportunities to their old rivals, which have grown much bigger. They will have a lot of catching up to do,” says an industry observer.
Source : The Edge
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