Malaysia Securities Exam Module 6 - Stock Market and Securities Law

Correct Answer:
(b) Advise the client to reconsider the timing based on market conditions.

Explanation:
Securities dealers are responsible for ensuring that trades are executed in a manner that does not disrupt market stability. In situations where clients request specific timing for large trades, dealers should advise clients to reconsider based on current market conditions. This approach aligns with the Rules of Bursa Malaysia Securities Clearing Sdn Bhd and regulatory principles aimed at preventing market disruptions and maintaining fairness in trade execution.

Correct Answer: (c)

Explanation:
In accordance with the Capital Markets and Services Act 2007, shareholders facing a potential hostile takeover should consider their options rather than making hasty decisions. Reviewing the company’s defense mechanisms, understanding the situation, and potentially engaging with other shareholders can help protect their interests. Selling shares immediately without assessing the situation may lead to missed opportunities or unnecessary losses.

Correct Answer: (a) Investigate the reasons behind the increase, review the company’s financial health, and make informed decisions based on the findings.

Explanation:
According to the Capital Markets and Services Act 2007, shareholders should investigate the reasons behind significant changes in a company’s financial statements before making decisions. Immediate selling without understanding the context may lead to uninformed decisions and potential financial losses. Reviewing the company’s financial health and making informed decisions based on the findings align with responsible investing practices.

Correct Answer: (b)

Explanation:
In line with the Capital Markets and Services Act 2007, shareholders facing allegations of financial fraud should investigate the situation and review the company’s response. Making informed decisions based on the long-term impact on the company’s fundamentals is crucial. Immediate selling without proper evaluation may lead to missed opportunities or unnecessary losses. Demanding a buyback at the original purchase price may not be a practical solution during a crisis.

Correct Answer: (d) Attend the EGM, as it provides an opportunity to express individual opinions on the company’s direction.

Explanation:
In accordance with the Capital Markets and Services Act 2007, attending an Extraordinary General Meeting (EGM) allows shareholders to express their opinions on significant company matters. Ignoring the notice or selling shares without participation may not align with responsible investing practices. Shareholders, including individual ones, can have an impact by actively participating in such meetings.

Explanation:
The correct answer is (c) To enhance financial reporting and accountability. According to Bursa Malaysia Listing Requirements, an independent audit committee is established to ensure the integrity of a company’s financial reporting. The committee oversees the financial reporting process, internal control systems, and risk management practices, thereby enhancing transparency and accountability to shareholders and other stakeholders.

Explanation:
The correct answer is (b) Ms. B may be liable for market manipulation. Market manipulation, as prohibited by the Capital Markets and Services Act 2007, includes spreading false information with the intent to affect the price of securities. Such actions are not only unethical but also illegal. Market integrity is crucial for fair trading, and participants are expected to refrain from activities that may manipulate market prices.

Explanation:
The correct answer is (c) The investor seeks to influence corporate decision-making by becoming a director. When an investor seeks a seat on a company’s board of directors, it is a form of shareholder activism. The investor intends to actively participate in the governance and decision-making processes of the company to address concerns, implement changes, or advocate for specific strategies. This approach allows the investor to have a direct impact on the company’s direction and policies.

Explanation:
The correct answer is (d). According to the Bursa Malaysia Securities Berhad Main Market Listing Requirements, a director who intends to deal in the securities of the company must disclose his intention to the board of directors and obtain their approval before proceeding with the transaction. This is to ensure transparency and prevent any potential conflict of interest. The requirement is outlined in Part A, Chapter 14, Paragraph 14.06 of the Listing Requirements.

Correct Answer: (c) Ms. Garcia should tailor recommendations based on each client’s unique financial situation, goals, and risk tolerance.

Explanation:
The correct answer is (c) because the Guidance Note emphasizes the importance of tailoring recommendations based on individual client circumstances. Ms. Garcia should consider each client’s financial situation, investment goals, and risk tolerance when recommending changes to their portfolios. This approach ensures that the advice is personalized and suitable for each client, aligning with the principles outlined in securities laws and the Guidance Note on Provision of Investment Advice.

Correct Answer:
The correct answer is b) Quantity must be multiples of the Tick size.

Explanation:
According to Rule 8.05 (1)(b), for Board Lots, the quantity for a single order of securities entered must not exceed the amount prescribed by the Exchange, and it must be based on the Tick size or multiples of the Tick size. This rule ensures that order quantities adhere to specified guidelines, promoting standardized trading practices and preventing excessive or arbitrary order sizes.

Explanation:
According to Rule 8.10(1)(c), the Exchange may cancel a Contract arising from a system failure in the trading system of a Participating Organisation. However, Rule 8.10(2) states that upon the occurrence of such circumstances, the Exchange may suspend trading on the ATS or take any other action it deems fit, or both. Therefore, option (b) is the correct answer.

Explanation:
According to Rule 8.10(1)(d), the Exchange has the authority to cancel a Contract if, in its opinion, there is an erroneous execution that may pose a systemic risk to the Clearing House. Therefore, option (c) is the correct answer.

Explanation:
According to Rule 8.10(4), if a Participating Organisation is not satisfied with the cancellation, they may apply to the Exchange for a review of the cancellation. Therefore, option (c) is the correct answer.

Explanation:
The correct answer is (d). According to the Bursa Malaysia Securities Berhad Main Market Listing Requirements, a substantial shareholder must notify the company and the stock exchange within one market day of acquiring additional shares. This notification requirement is outlined in Part A, Chapter 10, Paragraph 10.06 of the Listing Requirements. This ensures transparency and compliance with regulations related to substantial shareholding.

Explanation:
The correct answer is (b). According to the Bursa Malaysia Securities Berhad Main Market Listing Requirements, a director intending to deal in the securities of the company must notify the company’s secretary of the intention to sell and obtain approval from the board of directors before proceeding with the transaction. This is outlined in Part A, Chapter 14, Paragraph 14.06 of the Listing Requirements. This requirement ensures proper governance and transparency in dealing with concerns about overvaluation.

Explanation:
The correct answer is (a). A share buyback is designed to reduce the number of outstanding shares in the market, potentially increasing the earnings per share for existing shareholders. By repurchasing its own shares, a company aims to signal that its shares are undervalued and provide a return to shareholders. The rules regarding share buybacks are outlined in Part A, Chapter 6, Paragraph 6.04 of the Bursa Malaysia Securities Berhad Main Market Listing Requirements.

Correct Answer: (c)

Explanation:
In line with the Capital Markets and Services Act 2007, traders should exercise diligence when receiving tips. Acting solely on tips without conducting thorough research may lead to poor investment decisions and potential legal consequences. Tom should evaluate the credibility of the tip, conduct additional research, and make informed decisions to comply with securities laws and mitigate risks. Keeping the information confidential and continuing regular trading activities may lead to suspicions of insider trading.

Correct Answer: (b)

Explanation:
According to the Capital Markets and Services Act 2007, a stock split is generally viewed positively. Shareholders should perceive it as an event that increases the number of shares they hold, proportionally reducing the price per share. The overall value of their ownership remains the same. Selling shares based on misconceptions about stock splits could lead to uninformed decisions and potential financial losses. Understanding the implications of a stock split is crucial for responsible investing.

Correct Answer: (c)

Explanation:
In compliance with the Capital Markets and Services Act 2007, investors should exercise caution with unsolicited investment offers, especially those promising guaranteed high returns. Reporting such calls to regulatory authorities is crucial to prevent potential scams or fraudulent activities. Providing personal and financial information without proper verification may lead to identity theft or financial losses. Reporting the unsolicited call aligns with responsible investing practices and compliance with securities laws.

Explanation:
As per Rule 8.10(1)(b)(ii), the Exchange may cancel a Contract arising from a mistake in the entries made by the Exchange in the ATS. However, Rule 8.10(2) states that upon the occurrence of such circumstances, the Exchange may suspend trading on the ATS or take any other action it deems fit, or both. Therefore, option (a) is the correct answer.

Correct Answer: (b)

Explanation:
In accordance with the Capital Markets and Services Act 2007, companies delisting from the stock exchange must provide accurate and timely information to existing shareholders. This includes the reasons for delisting and the impact on shareholders. Delisting without proper disclosure or only under financial difficulties may violate securities laws. Transparent communication with shareholders during the delisting process is crucial for maintaining trust and complying with regulatory requirements.

Explanation:
The correct answer is (c) Mr. C should promptly disclose the information to the public. According to the Bursa Malaysia Listing Requirements, directors have a duty to ensure that any material information is disclosed to the public in a timely manner. This helps maintain market integrity and ensures that all investors have access to relevant information to make informed decisions. Failure to disclose material information may lead to severe regulatory consequences.

Explanation:
The correct answer is (a) Capital gains are not subject to taxation. As of my last knowledge update in January 2022, Malaysia does not impose capital gains tax on profits from the sale of stocks for individual investors. However, tax regulations may change, so it’s advisable to consult the latest information or seek professional advice for the most current tax treatment.

Explanation:
The correct answer is (b) Proxy voting allows shareholders to delegate their voting rights to another person or entity. Proxy voting is a process that enables shareholders who cannot attend a company’s meeting in person to appoint a proxy to vote on their behalf. This allows for efficient decision-making, especially during Annual General Meetings, where various resolutions, such as the election of directors, are voted on.

Explanation:
The correct answer is (c) To raise capital by offering shares to the public for the first time. An Initial Public Offering (IPO) is the process by which a private company becomes publicly traded by issuing shares to the public for the first time. The main objective is to raise capital that can be used for various purposes, such as expansion, debt reduction, or funding ongoing operations.

Explanation:
The correct answer is (a) To halt trading temporarily and prevent panic selling. Circuit breakers are implemented to temporarily pause or halt trading in the event of a significant market-wide price decline. The primary goal is to provide a cooling-off period, prevent panic selling, and allow market participants to reassess and make informed decisions. This mechanism aims to maintain market stability and protect investors during periods of extreme volatility.

Correct Answer: (b)

Explanation:
In line with the Capital Markets and Services Act 2007, a rights issue allows existing shareholders to purchase additional shares at a discounted price. Existing shareholders should assess the opportunity based on their financial goals and market conditions. Ignoring the rights issue may lead to missed investment opportunities. Selling shares to avoid dilution without considering the benefits of the rights issue may not align with responsible investing practices.

Explanation:
The correct answer is (c) To acquire a significant number of shares from existing shareholders. A tender offer is a public invitation by a potential acquirer to a company’s shareholders, expressing the acquirer’s interest in purchasing a substantial number of shares. The objective is to gain control or a significant stake in the company by acquiring shares directly from its existing shareholders.

Explanation:
The correct answer is B) Reporting the unusual activity to the relevant authorities. Bursa Malaysia Berhad Participating Organisations’ Trading Manual emphasizes the importance of maintaining market integrity. Traders are encouraged to report any unusual or suspicious activities to the appropriate regulatory bodies. This helps in preventing market manipulation and ensures a fair and transparent trading environment. Ignoring or participating in suspicious activities can lead to severe consequences, including regulatory sanctions.