Concerns over higher trading costs
PETALING JAYA: With the Securities Commission’s (SC) frank acknowledgement that it needs to relook its revenue model after another year of deficit, cost concerns are arising for investors of the Malaysian stock market.

On Monday, the regulatory body had reported a net operating loss of RM56.5mil, while after tax deficit also widened to RM71.3mil for the year ended December 2023, on what it primarily attributed to the low daily trading volume of RM2.1bil on local indices throughout the year.

Chairman Datuk Seri Awang Adek Hussin said talks are ongoing between the SC and the Finance Ministry as well as a host of other related parties including regulatory counterpart Bursa Malaysia Bhd , while disclosing that the latter has a larger share of the trading duty imposed.

Simple calculations would dictate that should the SC garner an improved portion of the duty, it would have to be increased if all the related parties were to leave their absolute profit levels untouched.

It goes without saying that if such a permutation were to occur, and the duty and fees are not increased to the benefit of investors, Bursa Malaysia could see its revenue level eroded in some degree.

As a reference, for the whole of 2023, Bursa Malaysia posted a net profit of RM252.4mil, an 11.4% year-on-year growth, on a revenue of RM616.5mil.

Observing this, chief executive at Tradeview Capital and author Ng Zhu Hann opined that with Bursa Malaysia’s net profit ranging between RM200mil and RM250mil annually, there is enough room for the fee structure between Bursa Malaysia and SC to be adjusted without significantly impacting the former’s annual bottom line.

On top of that, with Bursa Malaysia becoming a multi-asset exchange to increase its revenue stream, Ng believes that it should be able to sustain earnings well even if the SC’s share in the potential new fee-sharing structure were to come into force subsequently.

Rakuten Trade head of equity sales and seasoned analyst Vincent Lau does not believe trading duties would be increased, as this would surely dampen sentiment especially among retail investors.

His view would definitely appear to soothe trading cost concerns among market participants, especially also from the SC’s perspective, which is hoping for higher daily trading volumes to beef up its earnings.

“We are looking forward to more investing and trading participants in our stock exchanges and therefore, it would not be commercially viable to elevate trading costs.

“However, perhaps it can be suggested for the SC to increase the listing processing fee for companies intending to get into the Main Board,” he told StarBiz.

Awang Adek had noted that should the year-to-date RM3bil average daily trading volume (ADTV) of the local bourse be maintained throughout 2024, the SC would return to seeing an operating surplus in a healthy state.

Meanwhile, Tradeview Capital’s Ng said even if higher trading fees were charged, whether it affects the investment sentiment would depend on the percentage of hike, stating: “If the hike is minimal, there would not be much impact.”

However, he cautioned that any such move is counterintuitive towards pro-market development policies, especially since there are brokerage houses lowering their brokerage fees to attract both institutional and retail investors to utilise their respective trading platforms.

“One new brokerage house is even providing a six-month fee exemption to retail investors who sign up for a new account to be on its platform.

“This shows the level of competitiveness between brokerage houses to capture the investors’ market,” he said.

Concurrently, he told StarBiz that there is also no immediate incentive for Bursa Malaysia to pass on the higher trading costs to investors at the expense of affecting the ADTV for the local bourse.

Notably, Ng agreed with Awang Adek’s view that the regulator’s revenue structure with related parties needs to be adjusted as times have changed.

“While Bursa Malaysia is a for-profit entity, it still plays a role in championing the national capital market agenda.

“So if fee sharing can help strengthen financial sustenance of the SC, it is a win-win situation for Malaysia’s capital market.”

A cursory check on Bursa Malaysia’s website reveals that the SC charges potential Main Market companies a processing fee of RM80,000, plus an additional 0.05% of the total market value of securities to be listed, as well as the nominal value of any additional securities to be issued.

This duty, however, has a maximum cap of RM800,000. On top of that, there is also a registration of prospectus fee of RM15,000 for entities intending to list on the Main Market.

Aside from those, it also imposes a RM500 fee for the lodgement of information memorandum for companies to be listed on the LEAP Market, according to the website.

Awang Adek had on Monday remarked that the last review of the SC’s revenue model was carried out about 30 years ago, while also commenting that investment banks are paying the regulator a licensing fee of RM2,000 a year.

In comparison, he said in jest that it costs more than that amount for the SC to deploy its officer for a day to carry out checks on the books of investment banks.
Markets,SCMalaysia,RevenueModel,BursaMalaysia,TradingFees,MarketRegulation,InvestorConcerns,CostSharing
With the Securities Commission’s (SC) frank acknowledgement that it needs to relook its revenue model after another year of deficit, cost concerns are arising for investors of the Malaysian stock market.