CENTRAL LIMIT ORDER BOOK (CLOB)

Mr Leong Horn Kee asked the Deputy Prime Minister what are the latest developments on the Central Limit Order Book (CLOB) issue with Malaysia, and whether there are any mutually acceptable and workable solutions being considered.

Mr Ahmad Mohd Magad asked the Deputy Prime Minister whether the Government will consider legal recourse at this juncture in view of the continued deadlock in settling the Central Limit Order Book (CLOB) issue with the Malaysian authorities.

Mr Tay Beng Chuan asked the Deputy Prime Minister whether the Government intends to adopt a pro-active approach in expediting a settlement of the deadlock on the frozen Central Limit Order Book (CLOB) shares prior to the ultimate deadline of 30th June 2000.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, I last updated Parliament on the CLOB issue in November. I informed Parliament then that the Stock Exchange of Singapore, which is now called the Singapore Exchange or SGX, had written to the Kuala Lumpur Stock Exchange (KLSE) on 15th November 1999. The letter reminded KLSE that SGX had yet to receive a reply to its proposal for a staggered release of CLOB securities. SGX sent KLSE another reminder on 7th December 1999 to ask for a response within one month. SGX has not received any reply.

SGX's lawyers had circulated a legal summary to all CLOB investors on 17th December 1999. The summary apprised investors of their legal rights as owners of the CLOB securities.

Authorised Nominee Status

In late December, Malaysian Prime Minister Dr Mahathir and Finance Minister Tun Daim Zainuddin said that the CLOB securities might be transferred to the Malaysian Finance Minister when the Central Depository's (CDP) authorised nominee account expired at the end of 1999. They commented that CLOB investors should accept some of the private sector offers promptly to resolve the matter. On 31st December 1999, KLSE announced the extension of CDP's authorised nominee status for a "final period of six months to end of 30th June 2000."

MAS responded with a press statement on 29th December 1999. It cited the unanimous view of legal counsel, including Queen's Counsel, that SGX, actually the Central Depository (CDP), has acted in accordance with the law; and that there is no basis in law for a transfer of the CLOB securities to the Malaysian Minister for Finance, either on 31st December or at any other time. Whether KLSE extended CDP's authorised nominee status was not relevant, because CDP's and CLOB investors' legal rights under the CDP-SCANS agreement and under Malaysian law did not depend on the nominee status.

CLOB investors are asking for the securities to be migrated into individual securities accounts, in keeping with Malaysia's obligations under the WTO, KLSE's public duties under Malaysian law, and KLSE's contractual obligations under the agreement between CDP and SCANS. Private sector offers cannot resolve the CLOB issue. They do not supersede obligations that are binding in law, nor can they absolve the relevant parties from their legal responsibilities.

Malaysia's WTO obligations

The Singapore Government has been advised by WTO legal specialists that the measures taken by Malaysia against CLOB are inconsistent with the most favoured nation (MFN) provision of the WTO General Agreement on Trade in Services, because they discriminate against CLOB vis-a-vis other foreign exchanges. The failure to migrate the CLOB shares is inconsistent with Malaysia's obligations under the MFN provision of the General Agreement on Trade in Services, and its specific commitments to provide national treatment to foreign providers of financial services, recognised by the WTO. This is an issue that, if brought to the WTO for its review, would have to be resolved government-to-government.

KLSE's legal obligations under Malaysian law

The Malaysian Securities Industry (Central Depositories) Act amendments of September 1998 provide for the transfer of CLOB securities in the securities account of CDP into the accounts of individual CLOB investors held with the Malaysian Central Depository (MCD). This requirement under Malaysian law to migrate the securities into individual accounts is a statutory duty. It is not a discretionary exercise. The CDP-SCANS Agreement

In an effort to resolve the situation, CDP has also entered into an agreement with the Securities Clearing Automated Network Services (SCANS), which is a subsidiary of KLSE, to migrate CLOB securities into individual accounts held at MCD. This is a key agreement whose significance the Malaysian authorities have played down. KLSE stated in May 1999 that the agreement "was entered into to assist SES (Stock Exchange of Singapore) and CDP in facilitating the resolution of the CLOB problem". And more recently in its 31st December 1999 statement, KLSE made no mention of the agreement, but continued to maintain that "it is the duty and responsibility of SGX and CDP to resolve the [CLOB] problem".

The settlement of the CLOB issue is a matter of public interest. Furthermore, the failure of KLSE to migrate the CLOB shares in accordance with this agreement has implications under WTO law. I am therefore providing Members with copies of the actual legal document. [Copies of agreement distributed to hon. Members.] I have the original copy here with me and what Members have are photocopies.

As Members can see, this is a formal legal agreement concluded between the two parties. Mr Lim Choo Peng, who was President of SES [SGX], had met with Dato' Mohd Azlan Hashim, Executive Chairman of KLSE, on 8th September 1998 to discuss how to effect the migration of accounts on CLOB to the MCD. Arising from their meeting, the two sides formed a working group comprising senior executives of the KLSE and SES to work out detailed procedures for migration. The outcome was this CDP-SCANS Agreement.

The Agreement is dated 18th September 1998. It was signed, as you can see, on page 7, by Yang Mulia Ungku Abdul Razak, duly authorised for and on behalf of Securities Clearing Automated Network Services Sdn Bhd, and by Mr Kok Kar Wing duly authorised for and on behalf of The Central Depository Pte Ltd, and this was done in the presence of witnesses. Singapore and Malaysian counsels as well as QC have advised that this agreement is a legally binding contract and is specifically enforceable in Malaysian courts.

The agreement lists clearly the steps by which CLOB securities are to be transferred into individual accounts with the MCD for trading on the KLSE.

I refer Members to clause 2 of the agreement which defines the obligations of the CDP. This is on page 3 and is titled OBLIGATIONS OF CDP. Clause 2(a) reads as follows:

"CDP shall unconditionally and irrevocably grant SCANS the power and authority to act as follows: (i) to accept all securities to be transferred from CDP and to be deposited into a securities to be established by SCANS on behalf of CDP; (ii) to hold the said securities in custody and thereafter transfer the securities to the respective Depositors' interim securities accounts to be established and maintained by SCANS; (iii) upon request of the Depositors through their ADAs and/or ADMs (these are intermediaries through which investors open and maintain their MCD accounts), to transfer the said securities from the respective Depositors' interim securities accounts maintained by SCANS to the respective Depositors' securities accounts established or to be established by the ADAs and/or ADMs." Those are CDP's obligations.

Clause 3 of the agreement, which is on page 4, defines the Obligations of SCANS. This is the Malaysian side, and I read you Clause 3(a) to (c): "(a) SCANS shall provide the services pursuant to Clauses 2(a)(i) and (ii) only when SCANS has verified and is satisfied with the information furnished by CDP under Clause 2(b). (And these services being to accept all the securities to be transferred to hold it in custody and thereafter transfer them to the respective depositor's interim securities accounts.) (b) SCANS shall provide the services pursuant to Clause 2(a)(iii) above only upon the request of the Depositors through the ADAs and/or ADMs. (And these services refer to transferring the securities from the interim securities accounts to the respective depositors' accounts.) (c) SCANS' responsibilities herein are merely in the capacity of a custodian to provide the services pursuant to Clause 2(a) above, without any obligations and/or liabilities howsoever derived or arrived."

In December 1998, KLSE stated in a letter to SES and CDP that SCANS' role is merely as custodian and shall be without any obligations and/or liabilities and they cited clause 3(c). SES responded stating that it had been advised by its lawyers that the clause does not excuse SCANS from performing any and all obligations assumed by SCANS as custodian under or in connection with the agreement. At the same time, CDP also wrote to SCANS to emphasise that the agreement was a legally binding contract, and CDP having performed all its obligations, was entitled to enforce the performance by SCANS of its obligations under the agreement. There was no rejoinder from either KLSE or SCANS.

CDP has fulfilled its part of the agreement. It has provided SCANS with all information required under the agreement and the CLOB securities have been transferred into a consolidated account held with the MCD. MCD informed CDP on 20th October 1998 that individual interim accounts had been opened in the names of the persons appearing on the list furnished by the CDP. But SCANS has failed to complete its obligations and continues not to perform its contractual duties. CDP has since repeatedly requested SCANS to provide the interim securities account numbers. SCANS has not done so to date.

As the KLSE has not replied to SGX's letter to it asking for a response within one month of 7th December 1999, the Minister for Finance, Dr Richard Hu, has written to his Malaysian counterpart, Tun Daim Zainuddin, on 13th January 2000. Dr Hu's letter sets out the Singapore Government's understanding of the legal issues involved, and requested Tun Daim to ask the KLSE to fulfil its legal obligations under the CDP-SCANS agreement. Dr Hu is now awaiting the Malaysian Finance Minister's reply.

The CLOB issue must be settled in accordance with the law, and with the rights and obligations of CLOB investors and the Malaysian authorities. An early resolution is in the profound interest of both countries. The SGX and the Singapore Government continue to be anxious to resolve the matter bilaterally with Malaysia and will make every effort to do so. It is therefore premature to speculate on what further steps may be necessary should a bilateral solution not prove feasible.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I have a few supplementary questions but, before asking them, may I declare that I have no personal pecuniary interest in this matter because I have no investment or shares in CLOB at all, but it is in the interest of 170,000 Singaporean shareholders who have shares in CLOB.

First, I would like to ask the Deputy Prime Minister, in view of the tardiness or lack of reply from the Malaysian authorities, whether he would convey to the Malaysian authorities the impatience and indignation of investors, mostly Singaporeans and, in fact some Malaysians, on the delay. This delay has actually caused, in some cases, hardship or perhaps even bankruptcy to the investors who are caught in the bind.

Secondly, we have read in the newspapers that our Prime Minister is going to have a meeting with Dr Mahathir after the Chinese New Year. I would like to ask the Deputy Prime Minister whether he would ask that the Malaysians include this CLOB issue as an agenda item in the discussion with the Prime Minister of Malaysia and also to convey the Singaporean investors' indignation and impatience over this issue.

My third question is, while we are being patient ourselves and waiting for the Malaysian authorities to respond to our various letters, especially the most recent letter from the Minister for Finance, and in view of the June 2000 deadline, will it not be possible for us to institute the legal process at the same time, because six more months is not a very long time. This matter may still drag on for more than six months. So is it possible for us to do it in parallel, ie, institute the legal process through the WTO and through the Malaysian legal system? At least, we should register our displeasure with the matter.

BG Lee Hsien Loong: Mr Speaker, Sir, first on the impatience and indignation of investors, we have pressed the matter with the Malaysian authorities with all the vigour and urgency which we are capable of. They are aware of the impatience of the investors. SIAS has expressed itself repeatedly in public, including in Malaysia, and I am sure that proceedings in this House are also reported. It can be seen that many of the MPs have raised this matter on behalf of investors and wanted it to be solved.

As for the Prime Minister meeting Dr Mahathir, I think what the Prime Minister said was that he may meet Dr Mahathir after the Chinese New Year period, not now. If, by the time he meets Dr Mahathir, the matter is not resolved, it will be raised between them. It cannot not be raised, because it is one of the issues. But we are not depending on personal arrangements to solve this problem. This problem has to be solved in accordance with the law, with the contracts, with the solemn obligations which the Malaysian Government has undertaken at the WTO. That is why Dr Hu has written to Tun Daim in order to ask him to get his officials to pursue the matter.

Mr Leong then talked about the possibility of legal process in parallel. As I have said, it is a little premature for us to commit now and speculate on what we would do if our bilateral measures do not work. Dr Hu's letter to Tun Daim was on 13th January 2000. It is only a few days ago. So it is only courteous for us to give the Malaysian side some time to study the letter before we see how they decide to respond.

Mr Inderjit Singh (Ang Mo Kio): Mr Speaker, Sir, while we wait for the reply from the Malaysian Minister for Finance, can we at the same time set certain deadline for ourselves as to what we would do next in case we do not have a satisfactory response? I think the investors have waited quite a long time and they are dragging their feet on this issue for too long.

BG Lee Hsien Loong: Mr Speaker, Sir, we are pursuing this matter. I do not know whether it would be helpful for us to conduct our negotiations in effect in public, which is what we will do if I oblige Mr Inderjit Singh, but we are pursuing it urgently.

Mr Low Thia Khiang (Hougang): Two supplementary questions, Sir. I note that this agreement is between CDP and SCANS. I would like to know whether this agreement is legally binding on the KLSE and MCD. If so, how does it bind them?

Secondly, I feel that the issue of CLOB has been long outstanding. Perhaps the Government should set a deadline to resolve the issue. If not, what is the course of action that the Government will take? Otherwise, Singaporean investors would just be waiting with no solution.

BG Lee Hsien Loong: Mr Speaker, Sir, as I have explained, the agreement was signed between CDP and SCANS. It is binding on the KL Stock Exchange and MCD. That is our legal advice.

On the issue of deadline, I understand Mr Low's view. This is exactly what Mr Inderjit asked just now and the same reply applies.

Mr J. B. Jeyaretnam (Non-Constituency Member): It is really echoing what Mr Inderjit Singh and our Member for Hougang have asked. In view of the time taken, does the Government not think it proper and reasonable to inform the Malaysian authorities that unless the matter is resolved within a set period, the matter will have to be resolved by a court? There is no question that the matter has to be resolved according to law. So why are we dragging our feet?

BG Lee Hsien Loong: Mr Speaker, Sir, it is a rare occasion, but for once I fully sympathise with Mr Jeyaretnam's sentiments. I agree with him. It is not a matter to be dragged on. We are pursuing it urgently, but I do not think it is helpful for us to make public announcements of deadlines and then bind ourselves. But we are not standing around. As Mr Jeyaretnam says, finally it has to be resolved in a court, if it cannot be resolved any other way. As the Prime Minister has said, this is not just a Malaysian court issue, but if there is no other way, it has to also go to the WTO. [Mr Jeyaretnam interrupted.] Mr Speaker, Sir, Mr Jeyaretnam can rest assured that the grass is not growing beneath our feet.

Mr Simon S C Tay (Nominated Member): Mr Speaker, Sir, may I ask the Deputy Prime Minister, while I recognise that there is no need for public deadlines, it may not be in our interest, will the Government at least set itself an internal deadline? Can we be assured of that?

Secondly, given that the WTO remains a matter of recourse, the Deputy Prime Minister must be aware that the first complaint filed with WTO was between Singapore and Malaysia regarding petrochemicals. Why is this so different?

BG Lee Hsien Loong: Mr Speaker, Sir, if I tell him that I have an internal deadline, it becomes a public one. As for WTO, I am aware that the first complaint at the WTO was filed by Singapore with the Malaysian authorities and the matter was entirely and satisfactorily resolved within a reasonable period of the complaint being filed. If you ask why is this different, my answer is, this is not different.

Mr Leong Horn Kee: Mr Speaker, Sir, firstly, while there may not be a need to disclose an internal deadline, it is useful to have the Members of Parliament on this side of the House to express that we prefer a stated deadline of, say, three months, that we want to make public to the Malaysian authorities. Thereafter, we would start the legal process. Otherwise, the legal process will never get started.

Secondly, I would like to ask the Deputy Prime Minister, among all the proposals that have been tabled or made, is there any one that seems to be favourable or fair to our Singapore investors?

Finally, the position which the Malaysians have proposed. They have threatened that if it is not solved, the shares would be transferred to the Malaysian Minister for Finance. Is there any basis for the Malaysians to claim that these shares could be transferred to the Malaysian Minister for Finance?

BG Lee Hsien Loong: Mr Speaker, Sir, we have beaten the issue of deadlines to death.

On whether any of the proposals are favourable and fair, it is not for me to judge. If a private sector proposal is made, which is fully in accordance with the law and we distribute it, then it is up to investors to make their decisions and decide whether it is favourable to them or not. They know their legal rights. We have informed them of their legal rights. They know that we are pursuing the matter with the Malaysian Government in order to help them to enforce those legal rights. So it is not a matter whether generosity has been exercised, but have their legal rights been fulfilled or not? If so, they settle. If their legal rights have not been fulfilled or there has been a breach, then it is up to them whether they want to settle for less. But as I have explained in my main answer, private sector offers cannot solve the CLOB problem because the CLOB problem involves the two authorities. The Malaysian authorities have a responsibility to deal with this. The CLOB investors, some of whom are not Singaporeans, have rights which they can expect the Malaysian authorities to respect. If you ask what is a fair agreement, I say a fair agreement is in accordance with the law and the contract.

As to whether there is a basis for transfer to the Minister for Finance of Malaysia if they do not accept private sector agreements, MAS has issued a statement last year which I referred to, there is no basis of transfer to the Minister for Finance under Malaysian law. I am not saying whether it will or will not take place. But if you ask me whether under the law there is a basis, the answer is no.

Mr Speaker: General Lee, I take it that Questions 1 to 3 have been dealt with.

BG Lee Hsien Loong: Yes.