Exclusive: SC Malaysia mulls setting up of limited stock exchange to trade equity crowdfunding secondary shares

Visual from Freedigitalphotos.net Photo by KROMKRATHOG. Image ID: 100164045

The Securities Commission Malaysia (SC) is said to be mulling over the set-up of a limited stock exchange for trading activities under equity crowdfunding (ECF), according to people familiar with the alternative funding industry

Currently, there is no single strategy set in stone for investors to liquidate or enlarge their investments in ECF.

A person familiar with one of the ECF platform operators said the SC has sounded the idea to set up a limited secondary stock exchange to facilitate and place ECF shareholders’ trading under one roof.

“They have mentioned the possibility of having trading days, about two weeks every six months, for investors to trade their equity on this exchange,” the person told  DEALSTREETASIA.

For this to work, the secondary shares can only be traded within the same platform.This motion is not formalised and that the SC is weighing the potential options for liquidation.

From what DEALSTREETASIA has learned, the SC as a regulator is careful not to stifle the organic growth of the ECF industry, giving operators room to explore solutions for the industry.

An executive close to the industry developments pointed to the public consultation paper released in September in 2014 when the SC was gathering public feedback on ECF, that the operators themselves may set up a separate facility for secondary shares.

“The operators may do that, and offer it during a limited trading window, for example,  two weeks in every six months,” the executive said, adding that: “This is not mandatory, it depends on the operators’ business case.”

The executive noted that it may not make financial sense for the operators to operate a separate exchange just to trade ECF shares.

Malaysia is the first in Asia to have legislated ECF and the SC had licensed six operators to run ECF platforms, announced in June 2015.

Last Friday, CrowdPlus launched its platform, CrowdPlus.asia, becoming the first in the region to do so.

CrowdPlus chairman Teh Kim Seng said that the expected investment horizon for ECF investors is around five years, although Asia does not have any precedential cases yet to benchmark against.

He noted that investing into a startup or a young SME needs a long-term view, as companies need time to grow.

Under SC’s guidelines, a company can only raise up to MYR3 million per year through ECF, while the cap on the total funds it can raise through ECF in its company’s lifetime is MYR5 million. The company is not restricted to only one platform

On the investors’ end, each individual is limited to  a maximum  of MYR5,000 investment in a single company, and can  commit a maximum  of MYR50,000 per year to in ECF investments. They are also not restricted to any platforms.

Deputy finance minister Chua Tee Yong, who officiated the launch, said that more operators may be considered depending on the market uptake of ECF after the  current operators have gone live with their platforms.

The current six operators are expected to all launch their platforms by the end of the first quarter in 2016.

Chua said in his speech at the launch of CrowdPlus, that ECF is relatively new even in developed financial markets like the US.

“ECF was introduced in the US as part of the Jumpstart Our Business Act in 2012, but as of 2014, they are still not allowed for retail investors. Italy was the first European nation to enact laws regulating ECF in 2012, but the regulations were deemed too restrictive and some believe that that was the cause in low companies listing and fundraising through such platforms,” he said.

Chua also noted that Singapore, which has released its own consultation paper for ECF in February 2015, has proposed that participation be limited to accredited and institutional investors.

Globally, ECF had a growth of 182 percent between 2013 and 2014, making it an industry of $16.2 billion. The World Bank estimates that crowdfunding has a global market potential of up to $96 billion by the year 2025, Chua said in his speech.

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Photo: Freedigitalphotos.net

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.