CENTRAL LIMIT ORDER BOOK (CLOB) SAGA (Update)

Mr Thomas Thomas asked the Deputy Prime Minister if he will (a) update the House on the latest position on the Central Limit Order Book (CLOB) saga and whether there is a solution in sight; and (b) clarify the role of the Securities Investors Association (Singapore) and whether the Association is in a position to handle the issue satisfactorily.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, I last updated Parliament on the CLOB issue in August. The Stock Exchange of Singapore (SES) had submitted a proposal to the Kuala Lumpur Stock Exchange (KLSE) on 5th July of this year, suggesting a staggered release of CLOB securities over 12 months. The proposal was without prejudice to SES' rights under the CDP-SCANS agreement.

The KLSE subsequently sought clarification on SES' proposal. In particular, it asked for assurance that the staggered crediting of CLOB shares would not be detrimental to the Malaysian stock market. KLSE wrote to SES twice, on 15th July and 5th August. SES responded with relevant data and calculations demonstrating that the resulting impact should be minimal. SES replied to KLSE's first letter on 23rd July, and KLSE's latest queries by 3rd September. There has been no further response from the KLSE since then. SES sent a reminder to KLSE on 15th November 1999.

We believe that SES' proposal is reasonable and addresses Malaysia's concern of volatility on the KLSE if CLOB shares were to be released all at once. The Securities Investors Association of Singapore (SIAS) has also indicated its support for the proposal.

Members would have read in the papers about several private sector offers. The offerors have been in contact with the SES, and also with the Registrar of Companies and Businesses. The Central Depository (CDP) as bare trustee will carry out its obligation to inform CLOB investors of these offers when requisite regulatory approvals have been obtained. RCB will register prospectuses that are submitted if they comply with the Companies Act's requirements.

The RCB has stated that it will take into account all factors, including the views of SIAS, when deciding whether it is in the public interest to register the offer documents. Some of the private offerors have been in communication with SIAS. But so far none of the proposals have reached fruition.

The SIAS has played a useful and independent role, representing the interests of CLOB investors. That interested and public spirited Singaporeans have come forward to volunteer their services to tackle this problem is very heartening, and bodes well for the development of civil society in Singapore.

The SIAS has recently formed a financial advisory group comprising experienced practitioners in the securities industry, which will help SIAS to evaluate private sector offers independently and objectively, before making its recommendations to CLOB investors.

Recent articles in the Malaysian press have suggested that resolution of the CLOB issue would be a priority for Malaysia after the general elections. Singapore hopes that this will be the case, as it is in the interest of all parties to resolve the issue fairly and expeditiously.

Mr Thomas Thomas (Nominated Member): Sir, can I ask the Deputy Prime Minister to clarify the legal position of the CDP as well as the 172,000 CLOB investors?

BG Lee Hsien Loong: Mr Speaker, Sir, the CDP has now obtained comprehensive legal advice, including that of Malaysian lawyers and a few Queen's Counsels. The legal advisers are unanimous in their view that CDP and CLOB investors have a strong position in law and their rights over CLOB shares are indisputable.

The CDP had complied with Malaysian law. Specifically, the CDP-SCANS agreement which contains precise arrangements for CLOB securities to be transferred into individual accounts with the Malaysian Central Depository for trading on the KLSE is legally binding and is specifically enforceable in Malaysian courts.

Mr Thomas Thomas: Sir, can I ask the Deputy Prime Minister to clarify what would be the status of the CDP's authorised nominee status after 31st December 1999?

BG Lee Hsien Loong: Mr Speaker, Sir, the lawyers have also advised on what would happen if the CDP's authorised nominee status is not extended beyond the end of the year. Some CLOB investors are concerned that MCD will transfer the CLOB securities to the Malaysian Minister of Finance after 31st December for subsequent disposal by him. QC has advised that there is no basis in law for such a transfer to the Malaysian Minister of Finance. Indeed, the MCD has a statutory duty to transfer the CLOB securities into the beneficial owners' individual securities accounts under Malaysian laws. The SES wrote to MCD on 26th October to ask if it is their intention to maintain the status quo after 31st December by extending CDP's authorised nominee status. The SES is still waiting for MCD's response.

Mr Thomas Thomas: Sir, can I ask the Deputy Prime Minister whether the Singapore Government has considered taking action at the World Trade Organisation?

BG Lee Hsien Loong: Mr Speaker, Sir, the Singapore Government has taken advice on possible proceedings at the World Trade Organisation forum from leading legal counsel that specialises in WTO issues. The counsel has advised that the CLOB issue is within WTO's jurisdiction and Singapore has valid grounds for seeking redress at WTO on the matter. Malaysia's actions are inconsistent with its obligations under the WTO's General Agreement on Trade and Services (GATS). Under the GATS agreement, of which Malaysia is a signatory, countries are entitled to accept most favoured nation obligations that are mutually binding. The obligation is to accord all financial services and service suppliers of other WTO members treatment that is no less favourable than that given to similar service and service suppliers of other countries. There must not be discrimination between countries.

Today, scrip-based trading of Malaysian securities continues freely on two foreign exchanges within the European Community - the London Stock Exchange and the Copenhagen Stock Exchange. The Malaysian Securities Commission has issued a statement specifically recognising both of these as exempt markets, and yet Malaysian legislation has forced the discontinuance of CLOB International and caused the securities traded on it to be frozen. And this is a denial of most favoured nation (MFN) status that Singapore is entitled to.

Mr Chng Hee Kok (East Coast): Mr Speaker, Sir, will the Deputy Prime Minister give the House some indication as to when the matter will be settled after next week, ie, after the Malaysian general elections? Secondly, what is the timeframe in which this matter will be taken up with the World Trade Organisation?

BG Lee Hsien Loong: Mr Speaker, Sir, I am not able to say when the matter will be settled. It very much depends on the Malaysian authorities. We are raising the matter with them and we will continue to do so.

As to whether we would raise the matter in the WTO, that depends on what progress we make in our bilateral discussions with the Malaysians. I think it is an issue to be considered carefully.

Mr Thomas Thomas: Sir, can I ask the Minister whether the Government has a view on Mr Akbar Khan's irrevocable request and authority scheme (IRAS)?

BG Lee Hsien Loong: Mr Speaker, Sir, Mr Akbar Khan, in his press statement on 18th November, proposed an irrevocable request and authority scheme. This is in addition to his closed-end fund offer for which he has submitted proposed offer documents to the Registrar of Companies and Businesses (RCB). The RCB is reviewing the documents and has stated that it will take into account all information including SIAS' views in determining if it is in the public interest to register the documents. SIAS has been in contact with Mr Khan and has said that it is waiting for relevant information from him that will enable it to come to a responsible view.

Mr Khan's IRAS offer does not require RCB's approval. However, the SES will require clear and legally binding understanding with KLSE on any migration schedule. The KLSE has yet to indicate its position on either the SES' proposal for a 12-month migration of CLOB shares or Mr Khan's proposal for a 15-month migration of shares after a further 12-month lock-up period. The lock-up period is 7 months for warrants and derived instruments, but 12 months for shares. The CDP will not be able to put the migration proposal to investors without an unequivocal and binding commitment from the KLSE. As and when the offers have been given official approval and accompanied by clear commitments from the KLSE, the CDP will be able to put them to CLOB investors. CLOB investors will have to study them carefully and calmly before deciding for themselves whether to take them up. They should consider all relevant factors, including their legal rights as owners of the CLOB shares.