Capital markets

Adrian Chee of Adnan Sundra & Low elucidates the capital markets, how securities are traded and the lawyer's role in protecting the client's interests.

Capital markets represent the markets in which the raising of capital (through the issuance of securities to investors) and trading in securities (where investors buy and sell securities) take place.

Capital markets law is an area of practice that has only become well-known in the last 20 years, reflecting the growing influence of the capital markets industry on the national economy. It is an important area of legal practice as lawyers in this field participate in the establishment, maintenance and improvement of a legal framework within which such markets may operate efficiently and reliably.

The main aim for lawyers who work in this area of practice is to facilitate the interaction between the capital market participants by identifying and resolving the legal issues that govern such interaction. Today, small, medium and large firms can be found practising in this area. However, the number of firms in Malaysia undertaking this area is still relatively small, representing possibly less than 20% of the total law firms in practice in the country.

The scope of the work involves advising the transaction parties on different areas of law, such as those relating to securities, contract, corporate and commercial banking and exchange control. The legal counsel of an issuer of securities must advise his or her clients on the legalities of offering and issuing securities to investors, and help his or her client to negotiate for the required funds with the least amount of restrictions on the client's business and operations. The legal counsel of an investor of securities must advise his or her client on the legal risks of investing in the securities and help his or her client to negotiate for the most appropriate terms to safeguard the client's investment. The legal counsel advising a party in a securities trade has to ensure that the usual risks associated with a sale and purchase transaction are adequately addressed, and also that all securities laws are complied with by his or her client for the transaction.

Lawyers in this area are required to draft and review securities documentation, which can be voluminous as well as technical. They are also required to undertake legal due diligence reviews to ensure proper disclosure of information to regulatory authorities and investors. Lawyers will need to keep abreast of the latest developments in the securities industry and familiarise themselves with all forms of capital raising structures.

The clients of capital markets lawyers are those parties involved in securities transactions. They include the issuer of the securities, the investors and the intermediaries that arrange and manage the transaction. Issuers can include private corporations as well as public institutions, including the government, whereas investors include public and private institutions and funds as well as individuals who constitute the retail segment of the market. The intermediaries that arrange and manage the transaction are licensed financial institutions, such as investment banks, and financial advisers who are regulated by Bank Negara Malaysia and the Securities Commission. A capital markets lawyer can be expected to advise any and all of these persons.

Lawyers working in this area should expect to do a lot of reviewing and drafting of commercial documents and research into technical issues. Meeting with clients is also common, and the more senior practitioners will find themselves substantially involved in negotiations for their clients.

The hours of a capital markets lawyer can be very long, and there is usually a high level of urgency imposed by clients in receiving advice from their lawyers. This stems largely from the nature of the capital markets, where the timing of the completion of a transaction (that is, when the securities are issued into the market) can significantly influence the cost of raising capital through that transaction.

There are no specific qualifications to go into this area of work, but students should study elective subjects such as company law and commercial law (apart from the compulsory subject of contract law) at university.

The skills that a successful lawyer needs to have in this area are those relating to research, analysis, communications, drafting and time management. Fluency in English is very important, given the prevalence of the language within the industry.

Capital markets lawyers must have a strong interest in learning about the commercial aspects of the industry. Without an appreciation of the commercial or business realities of a securities transaction, a lawyer is not likely to be able to advise his or her client adequately. He or she should have a keen mind for learning about how businesses operate and how the securities industry as a whole runs. A graduate should be prepared to spend a lot of time learning about the law, which changes alongside with market developments. Finally, he or she must have a positive outlook to deal with the various complex and technical issues, demands from sophisticated clients and deadlines that are all too common in this area.

About the author

Adrian Chee is a Partner at Adnan Sundra & Low. He graduated from Leicester University in 1994 and has been with the firm for 11 years.

© GTI Specialist Publishers. Reproduced with permission.