Securities Commission Malaysia chairman Datuk Seri Dr Awang Adek Hussin said talks are still in preliminary stages with the government towards a potential review of its fee structure to beef up its revenue as the SC has been running at a deficit. (Photo by Shahrin Yahya/The Edge)

KUALA LUMPUR (March 25): The Securities Commission Malaysia (SC) running into a deficit in 2023 has pushed the regulator into questioning its financial sustainability and engaging the government towards a potential review of its fee structure to beef up its revenue.

SC chairman Datuk Seri Dr Awang Adek Hussin said talks are still in preliminary stages but noted that it is crucial towards addressing the commission’s financially unsustainable state.

“We just had a meeting with the Ministry of Finance [MOF] hardly a week ago. The conclusion for that meeting was that ‘okay, they [MOF] are receptive, they don’t mind but we have to engage our players’,” Awang Adek told the press on Monday.

“So we’re starting, not only [with] Bursa Malaysia, we have to start talking to the industry as a whole, see where we can land on this in an amicable way,” he added.

Awang Adek disclosed this in addressing the SC’s annual deficit swelling year-on-year in 2023.

The SC posted a net operating deficit of RM56.46 million in 2023, which is 384.5% higher compared to RM11.65 million a year earlier, on lower trading duties.

Revenue fell 7.2% to RM209.91 million from RM226.16 million a year ago, while expenses rose 12% to RM266.36 million from RM237.81 million previously.

“The SC, 90% of our revenue comes from duties imposed on trading in the market and that is shared between the SC and Bursa — with Bursa having the bigger share,” Awang Adek said.

Heavy reliance on trading activity

Awang Adek added that the SC’s earnings are therefore heavily reliant on the level of trading activity of a given year, noting that the commission requires an average daily value (ADV) of between RM2.5 billion and RM2.6 billion to break even.

“But last year, the value was so low, imagine we were at RM2.2 billion [ADV] compared to the RM2.5 billion to RM2.6 billion breakeven — so there’s this deficit,” he added.

“So, how do we move forward? We have to see how we can have a better revenue model in terms of sharing with Bursa. Is it fair this was done 30 years ago? Is what we’re doing now still relevant with the times?” he posed.

Besides the SC’s trading duty structure with Bursa, Awang Adek also underlined the “minimal” fees it charges its players for its regulatory services, such as licensing.

Taking investment banks as an example, he said the SC charges them a licensing fee of RM2,000 per year, noting in jest that just having a single officer to check their books for a single day would exceed the figure.

“The central bank, they charge banks hundreds of thousands a year. So, these are the things that we have to review,” he added.

Awang Adek stressed that the SC’s financial sustainability is in question, reasoning that if it remains in the same unsustainable state for another decade down the road, posting a deficit year by year, the regulator will have to “close shop”.

“So, something must be done, [and] we’re working on it now,” he said.

Awang Adek explained that maybe low fees were fixed previously as Malaysia wanted to develop its capital markets and was not so concerned with overcharging fees, coupled with the stock market doing well in the 1990s generating enough revenue for the commission’s operations.

“But now that we see the situation has changed, we have to review the situation,” he added.

However, Awang Adek noted that he does not expect the SC to log a deficit for 2024, reasoning that the ADV for the year thus far stands at RM3 billion.

“So, if that [favourable ADV] continues for the rest of the year — it's only been three months — there will be a hefty surplus,” he said.