Kuala Lumpur Stock Exchange (KLSE): What it is, How it Works

What Is the Kuala Lumpur Stock Exchange (KLSE)?

The Kuala Lumpur Stock Exchange (KLSE) is the former name of a Malaysian stock exchange located in the capital city of Kuala Lumpur. The KLSE dates back to 1930 and was specifically created to allow the trading of Malaysian securities. The exchange went through several name changes over the years but is now known as Bursa Malaysia.

KLSE is one of the largest exchanges in the Association of Southeast Asian Nations (ASEAN), allowing traders to trade equities, exchange traded funds (ETFs), offshore Islamic assets, and other securities.

Understanding the Kuala Lumpur Stock Exchange (KLSE)

As noted above, the Kuala Lumpur Stock Exchange is now known as Bursa Malaysia. The exchange is fully integrated and offers clearing, trading, listing, depository, and settlement services. It has a fully automated trading system which launched in late 2008.

According to the exchange's website, 900 companies are able to use it to raise capital through a number of different economic activities. Its main index is the Kuala Lumpur Composite Index (KLCI), now known as FTSE Bursa Malaysia KLCI, which is composed of the top 30 companies on the Bursa Malaysia Exchange.

A number of different financial securities are traded on Bursa Malaysia, including equities, bonds, derivatives, exchange-traded products (ETPs), and real estate investment trusts (REITs). There's also an Islamic market team that promotes Shariah-compliant capital markets to cater to the nation's Muslim majority. This market includes domestic and offshore Islamic assets as well as Islamic banking, the Shari'ah-compliant trading platform that was launched in 2009.

Companies that want to list on the exchange have three options available including the main or prime market for large, established corporations, as well as the ACE market for companies that have the potential for growth. The final option is known as the LEAP market, which is meant for up-and-coming small- and mid-sized companies.

Bursa Malaysia also works with other global corporations and exchanges to promote performance and transparency in global capital markets. For instance, it entered into a partnership with the Chicago Mercantile Exchange (CME) to offer derivatives. This agreement is valid until 2025.

Special Considerations

Traders are only able to short-sell equity-based exchange traded funds, but that may change in the future. In July 2018, Bursa Malaysia released a consultation paper that sought public comment on a proposed amendment related to ETFs. This call comes after a task force on ETFs, which included the Securities Commission Malaysia (SC), Bursa Malaysia, and other market participants made recommendations aimed at expanding investor interest in ETFs. Recommendations from the task force urged including ETFs, such as:

• Futures-based ETFs
• Leveraged ETFs
• Inverse ETFs
• Physically backed commodity ETFs
• Synthetic ETFs

In service of these goals, the rule changes would loosen regulations on the short-selling framework to allow various short-selling types of ETF units.

History of the Kuala Lumpur Stock Exchange (KLSE)

The exchange dates back to 1930, when it was established as the Singapore Stockbrokers' Association. This was the first securities business developed in the Southeast Asian nation. It went through a series of name changes including the Malayan Stock Exchange and the Stock Exchange of Malaysia. Securities trading to the public began in 1960 and the exchange was incorporated as a company in 1976.

In a move to become more customer-focused, the exchange demutualized in 2004. With demutualization, a business that has member ownership converts into one that has shareholders. With this change in ownership structure, the name changed to Bursa Malaysia.