Parliamentary Replies
Published Date: 06 May 1999

DPM Lee's Reply to Parliamentary Question: Status of Clob Shares Held by Singaporeans

Issues Raised in Parliament

Status of Clob shares held by Singaporeans

For Parliament Sitting on 06 May 1999

Q To ask the Deputy Prime Minister whether he would expect to see the equivalent volume of $229 billion worth of Malaysian equities traded on Clob International quoted in a Malaysian White Paper to go to the Kuala Lumpur Stock Exchange now that there is no Clob International and whether he would expect to see greater liquidity for Singapore equities traded on the Stock Exchange of Singapore in the absence of Clob International.

Q To ask the Deputy Prime Minister whether he will give an update on the status of negotiations with the Malaysian government on the US$2.6 billion worth of frozen Central Limit Order Book (CLOB) shares. To ask the Deputy Prime Minister what is the progress in engaging a private fund manager to manage public funds.


Interest in Malaysian and Singapore shares

1 Mr Heng Chiang Meng asked whether past investor interest in Clob Malaysian shares would now go to the KLSE, since Malaysian shares are no longer traded on Clob; or whether this investor interest will migrate to the SES.

2 Retail investors actively traded Clob Malaysian shares for two main reasons. Firstly, historically close ties between the two countries gave Singapore retail investors a keen interest in Malaysian companies. They wanted to invest in Malaysian companies even after the KLSE and the SES parted ways in 1973 and Malaysian counters were delisted from the SES in 1990. And secondly, Clob made it much more convenient for Singapore investors to buy Malaysian shares. Investors here could transact in S$ without being exposed to foreign currency risk; and they could deal through Singapore brokers, with whom they were more familiar. This was why Clob was successful.

3 Since the cessation of the trading of Malaysian shares on Clob in Sep 98, retail investor interest has shifted to Singapore shares listed on the SES. This can be seen from the increase in the turnover on SES. From Oct 98 to Mar 99, SES recorded an average monthly turnover of S$9.8 billion. This figure, without Clob trading, is 63% higher than the average of S$6.0 billion per month transacted in the same shares during the 8-month period (from Jan 98 to Aug 98) before Clob ceased trading in Malaysian counters. The main reason is loss of convenience with the closure of Clob and the imposition of capital controls in Malaysia.

S$ billion

PeriodAverage Monthly Turnover
on SES (Including Clob
Average Monthly
Turnover on SES
(Excluding Clob )
Jan - Aug 987.66.0
Oct 98 - Mar 99
(Without Clob)
% Increase2863.3

4 It therefore appears that investors on Clob have for now shifted their interest from Malaysian to Singapore shares.

5 There have been accusations that Clob investors shorted Malaysian shares, and were responsible for the collapse of the Malaysian stock market. But very few institutions invested in Malaysian shares through Clob. SES figures confirm that an overwhelming majority (more than 98%) of Clob investors were individuals rather than institutional investors.

6 A recent comprehensive analysis by the Singapore Business Times, based on data obtained from SES, conclusively refuted the charge that Clob caused the decline in the KLSE. I have circulated the full BT analysis to members.

7 BT found no evidence of significant short-selling on Clob. Judging by share buy-ins by SES, short-selling of Clob shares had been negligible. BT also analysed trading data on the three days each year which showed the largest falls in the KLCI, for the last five years. It found few Clob counters among the top 30 losing stocks on those days. Further, turnover in these Clob counters was much lower than the corresponding turnover on the KLSE- generally less than 5% of KLSE turnover for the same counters. This is hardly the picture of rampant short-selling on Clob.

8 BT studied more closely the period from the end of 1996, before the Asian crisis, up to 31 August 98, just before Malaysia imposed capital controls. I will distribute a chart showing how over this period Clob holdings of Malaysian shares rose steadily, even as the KLCI declined continuously and steeply together with other regional stock indices. The KLSE Composite Index (KLCI) lost three quarters of its value, falling from 1238 on 31 December 96 to 302 by 31 August 98. But Clob investors doubled their holdings of Malaysian shares, from 5.7 billion on 31 December 96 to 11.7 billion on 31 August 98. Their holdings increased steadily quarter by quarter, despite the decline of the KLCI and the deepening economic crisis in the region and in Malaysia. The sell-down of Malaysian shares did not take place in Singapore.

KLSE Composite Index and Clob Investors' Shareholdings of Malaysian Shares

9 Despite the recent rally in the Malaysian market, at today's prices many Clob investors are sitting on losses. Whether they decide to sell, hold or buy more shares on the Malaysian stock market once their trading accounts are opened will depend on their assessment of the value of their shares and of the rules governing their trades.

Update on the Clob Issue

10 Mr Tay Beng Chuan has asked for an update on the frozen Clob shares. I last briefed Parliament on the status of Clob shares during the Committee of Supply in March this year. Yesterday, SES issued a press statement setting out the events leading to the signing of the Agreement, and the background to the cash offer by Effective Capital Sdn Bhd to buy over Clob shares from investors. I have circulated copies of the SES statement to members.

11 Members will recall that SES' Central Depository Pte Ltd (CDP) signed an agreement in September last year with the Malaysian Securities Clearing Automated Network Services Sdn Bhd (SCANS), a subsidiary of KLSE. The agreement provided for the migration of all Clob shares to investors' own securities accounts with the Malaysian Central Depository (MCD), based on procedures determined and announced by the KLSE. As the SES statement explained, the SES and CDP have done what is expected of them under the Agreement. But till today SCANS has not fulfilled its part of the agreement, which would enable Clob investors to have their shares in their own securities accounts and to trade their shares on the KLSE.

12 In the meantime, certain "private sector" solutions have been proposed. One is by Mr Akbar Khan, a Singaporean businessman resident in Malaysia. He has formed a company, Effective Capital Sdn Bhd, which on 30 April offered to buy Clob shares from investors for cash. The prices offered are on average 58% lower than the prices quoted on the KLSE as at 30 April 1.

13 There have also been media reports of other possible offers, including an offer to Clob investors of shares in a closed-end investment fund, to be listed on the KLSE, and which will gradually divest the shares.

14 The SES statement yesterday gave details of its discussions with Mr Khan on his offer. This was to inform Clob investors of the background to Mr Khan's proposal, and of SES' discussions with Mr Khan and his Singapore lawyer, Mr Sat Pal Khattar of Khattar Wong and Partners.

15 The SES has maintained throughout that "private sector" offers by Mr Khan or any other party cannot and do not affect CDP's Agreement with SCANS. This is the advice of SES' lawyers, who have also consulted Queen's Counsel on the offer. The lawyers have also advised the SES that Clob investors were, and remain, legal owners of their shares. The Agreement signed by SCANS recognises that Clob shares have the same legal rights as the same classes of shares listed on the KLSE, and gives full effect to these legal rights. Indeed Clob shares have continued to receive dividends and offers for rights issues.

16 The SES has therefore insisted on clear and reasonable arrangements being made for Clob investors who do not accept any private offers. They should have their shares transferred to their own accounts with the MCD and be allowed to trade them on the KLSE.

17 Mr Khan's offer, which is a cash offer for Malaysian securities, does not need to comply with regulatory requirements in Singapore. However, in view of the considerable public interest, the SES has pointed out where the offer documents fall short of generally accepted international standards.

18 SES' lawyers have advised that the CDP has a duty to disseminate details of any offers made to Clob investors, and convey acceptances of the offers to the offerors. CDP will carry out this obligation to inform Clob investors and collect their responses to Mr Khan's offer. In so doing, neither SES or CDP will be sponsoring, sanctioning or making any recommendation to Clob investors as to whether to accept or reject the offer.

19 Clob investors should carefully study the offer by Mr Khan, before deciding for themselves whether to take it up. They should consider all relevant factors, including the prices that Effective Capital has offered for their shares.

20 Clob investors who do not wish to sell their shares on the terms offered by Mr Khan, or to accept any other offers, do not have to do so. Their legal ownership of their Clob shares is not in issue.

21 The SES will continue to press the KLSE and SCANS to meet their obligations under the migration Agreement. As the SES has stated, the respective obligations of the two parties are not matters of opinion, but a legal question which can be determined. SES has obtained legal advice that the agreement is a legally binding and enforceable contract.

22 The Government has also taken up the Clob issue with the Malaysian Government at the political level. PM Goh Chok Tong discussed the Clob issue with Prime Minister Dr Mahathir at a bilateral meeting in Hanoi in December last year. Both PM Goh and Dr Mahathir subsequently told the press that Clob would be included in the package of outstanding bilateral issues to be discussed and resolved by the two Governments. Dr Mahathir said at a press conference in Hanoi on 17 December 98: "I thought that it is best that we resolve as a package, including of course the problem of CPF and Clob." He also said: "We would rather like to settle the whole thing as a package so that the water supply is linked to the problem of the railway, CIQ, CLOB and CPF".

23 However, the Malaysian Government subsequently changed its stand. On 13 March 99, Reuters quoted Malaysian Finance Minister Tun Daim Zainuddin saying that discussions between Singapore and Malaysia on the Clob issue should be left to the KLSE and SES, and were not part of the overall "package" of issues to be discussed at the government level. Reuters quoted Tun Daim: "I've always maintained it's between KLSE and SES. ? As far as I know, it is not part of the package; if they want to include it in the package, it is up to the parties, both governments."

24 Malaysian and Singaporean senior officials have met twice this year on 11 March and 21-22 April to discuss the proposed package deal. At both meetings, the Malaysian delegation asked that Clob be removed from the agenda as it was not a Government-to-Government issue. Singapore's response on both occasions was that the Clob issue should not remain outstanding when the package is finally resolved. This remains Singapore's stand.

25 The Government and SES will make every effort to resolve the Clob issue expeditiously. Clob investors have provided support for Malaysian shares over the years, even when the market was declining over the two years before the imposition of capital controls. It is not to anyone's advantage for Clob investors to feel that they are being treated unfairly, or for the international markets to perceive so.

1 The discount on a weighted average basis is 58%; the simple average discount is 46%.


Clob Investors Were Net Buyers of KL Stocks During Asian Crisis, Business Times, 09 Apr 1999


Clob Not a Key Factor for KLSE's Worst Falls, Business Times 09 Apr 1999


Clob Shareholdings Average $11,600 per account, Business Times, 09 Apr 199