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Labuan Financial Exchange Launched To Aid Development Of Budding Offshore Centre

Mary Swire, Tax-news.com, London

27 November 2000


The Labuan Financial Exchange (LFX), an offshore exchange wholly owned by the Kuala Lumpur Stock Exchange (KLSE) and trading in financial instruments such as equities, investment funds, debt instruments and insurance-related instruments, is seen as one of the the key components in promoting Labuan as an offshore financial centre. Officially launched last week by Finance Minister Tun Daim Zainuddin, the LFX will allow not just new companies but also those already listed on other exchanges (except the KLSE), to have their shares traded on it. The Labuan Offshore Financial Services Authority (Lofsa) is also looking at the possibility of reviving the concept of twinning Labuan with the Multimedia Super Corridor (MSC) to complement the LFX.

Speaking at the Labuan Lecture Series 2000 and Lofsa 10th anniversary celebrations last week, LFX chairman Datuk Mohd Azlan Hashim said that the new exchange will not be a threat to the Malaysian Exchange of Securities Dealing & Automated Quotation (Mesdaq), because one is an offshore market, the other is onshore. He also said that KLSE-listed companies would not be eligible to list on the LFX: 'We want to keep offshore and onshore markets separate. We also want to bring in as many international players and investors into the country as possible,' he said, adding 'they will complement instead of compete with each other. LFX will expose the companies to a global market through the participation of international players.'

Mr Azlan said that there was a distinct need for the LSX, which hopes to see the first listing before the end of 2000, otherwise companies would have not option but to raise capital further afield, for example on the Singapore Exchange of Securities Dealing & Automated Quotation (Sesdaq) or Hong Kong's Growth Enterprise Market. He stated: 'Why should we let them go elsewhere?'

It is hoped that the LFX will be particularly attractive to companies in Asia Pacific countries with either limited resources to set up an exchange or too limited a number of commercial enterprises to justify having an exchange. As for international investors and companies, LFX permits the trading of multi-currency instruments and is unencumbered by any exchange or capital controls.

With regards Labuan twinning with Multimedia Super Corridor status companies, it is thought that both the MSC and offshore companies may be able to capitalise on each other's facilities. Lofsa chairman Datuk Dr Zeti Akhtar Abdul Aziz said: 'Since LFX has offered itself as a listing and trading platform for MSC companies, this link can be extended to other Labuan institutions under the twinning concept.'

These latest initiatives are part of a package of measures designed to develop Labuan as an international offshore financial centre. The Lofsa chairman is of the opinion that in the past, the lack of products and services has held back Labuan from becoming a key player in the offshore world. 'These initiatives addresss this issue,' she said.

To create a financial infrastructure, Lofsa is also endeavouring to expand the scope and depth of offshore activities through the review of legislation and policies, and this includes keeping abreast with accepted international regulatory practices, according to Dr Zeti. She said that although Lofsa supervisory practice and legal framework is in accordance with internationally accepted standards, it still need to be continually assessed and upgraded to ensure that the jurisdicition meets the latest international requirements: 'We have already set up the necessary supervisory structures within Lofsa to enable it to conduct onsite inspection as and when necessary,' she said. Lofsa is also currently finalising money laundering legislation and a bill is in the draft stage.

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