Saudi regulations target stock market speculators



REUTERS

Published — Friday 17 May 2013

Last update 17 May 2013 5:00 am

| نسخة PDF Print News | A A

DUBAI: A drive for tighter regulation of Saudi Arabia's stock market may help to break the hold of short-term speculators on share prices, making the market more attractive to local and foreign institutional investors.
This week the Capital Market Authority, operating under a new chairman, announced a series of measures designed to reduce the volatility of shares, make them harder to manipulate and improve the quality of listed companies.
Authorities have tried in the past to lift the market's tone, with limited success. Currently over 90 percent of daily trading on the Arab world's biggest stock market, which has a capitalization of about $ 400 billion, is conducted by retail investors rather than institutions, officials say.
Because such investors often chase short-term gains in low-priced shares that are easy to manipulate, prices can become very volatile and money is sucked away from blue-chip companies that deserve to be more highly valued. This hurts the market's role as a stable source of funds for corporate investment.
The CMA's initiatives this week suggest it is making its strongest effort in years to change that pattern, fund managers and analysts said.
"The new management of CMA has started their work to enhance the market overall — expect a few more changes," said Mohammad Omran, an independent financial analyst in Riyadh. "These initiatives will try to organize the practices in the market and move it away from illegal and speculative trading."
If successful, the reforms could make the Saudi market more welcoming to foreign as well as local institutional investors. At present foreigners can invest only via a small number of exchange-traded funds and swap arrangements; Riyadh has for several years been preparing to permit direct investment, though it has not set a date for implementation.
Stock market reform also has political implications. After the Arab Spring uprisings elsewhere in the region, the government is spending billions of dollars to ease social discontent by cutting unemployment and poverty. Stronger capital markets could stimulate the private sector and create jobs.
The move against speculation appears to have backing at the top of the government. Custodian of the Two Holy Mosques King Abdullah appointed Mohammed bin Abdulmalik Al-Sheikh, previously an executive director at the World Bank, as chairman of the CMA in February.
Al-Sheikh has worked at US law firm Latham & Watkins in Riyadh; the firm said he had nearly two decades of experience representing sovereign wealth funds and government bodies in Saudi Arabia, and that his law practice focused on mergers and acquisitions, capital markets and project finance.
Last week Al-Sheikh told reporters that with other government bodies, the CMA was developing a strategy to promote institutional trading on the stock market, and was disappointed by the current "high levels of speculation" in shares.
"The CMA should put a limit on this manipulation to safeguard investors. We are currently trying to address this issue," he said.
On Sunday, the CMA announced stocks would be limited to price swings of 10 percent on their first day of trade, as opposed to the unlimited movement allowed previously. A 10 percent daily limit is already applied after listing day.
By slowing the ascent of newly listed stocks, the new rule may give institutional investors, which tend to have longer-term horizons, more time to buy into them.

"This is a step towards a more sophisticated market — the price of the IPO will hold more value,” said Tariq Alalaiwat, international sales manager at NCB Capital. “Usually, books are more inflated than they need to be, and people buy into loss-making companies for a quick buck.”
The new rule might end debacles such as the case of National Medical Care Co., which listed on March 13. It rocketed to an intra-day high of SR 200 from its initial public offer price of SR 27, but ended its first day at SR 122 and by March 31, had slid back to SR 72.
On Monday, the CMA said it was discussing with industry participants a proposal to calculate a stock's closing price using the average in the last 15 minutes of trading, weighted by volume, instead of simply the last trade. This would make it harder for traders to manipulate the closing price.
The CMA also proposed sanctioning listed firms if their accumulated losses exceeded 50 percent of their capital. The current regulation sets a threshold of 75 percent.
Earlier this month, authorities signaled they were serious about such standards by ordering the delisting and liquidation of Saudi Integrated Telecom Co., a relatively small and new firm which had struggled with losses for months.
Share price movements since Sunday suggest some investors are worried by the CMA's policy. Small-capital and insurance stocks, which are often favored by speculators, have dropped; Al-Ahlia Cooperative Insurance Co. plunged its 10 percent limit on Monday and by the same amount on Tuesday. The sector's index lost 12.3 percent in the last three days.
The overall stock market has not suffered much, however, suggesting other investors see benefits in the reforms. The main market index fell 1 percent between Sunday and Wednesday.
Alalaiwat said that in the long term, retail investors would be forced to become more intelligent in their stock picks, rather than simply chasing shares that appeared to have entered an uptrend.
"These new regulations will calm down the market and people will have to start picking stocks with fundamental value."
FROM: REUTERS

What's happening around Saudi Arabia

RIYADH: The Saudi Commission for Tourism and National Heritage (SCTNH) has encouraged businessmen to invest in tourism villages in Asir region.“Tourism villages are considered to be one of the most attractive options in the province,” said Mohammad A...
RIYADH: The General Presidency for Youth Welfare (GPYW) has taken part in serving pilgrims and visitors to the Two Holy Mosques as part of the organization’s voluntary and humanitarian work. In his statement, the head of the Riyadh office, Abdulrahma...
RIYADH: Prince Faisal bin Bandar, governor of Riyadh, opened on Wednesday 20 environmentally friendly entertainment projects with a total area of more than 270,000 sq. meters. Among interesting features of these new parks are replicas of the Eiffel T...
JEDDAH: Children and youths afflicted with cancer in the Eastern Province have launched a campaign against terrorist attacks. The patients, their families and doctors have slammed the attacks, which saw many killed and injured, a local publication re...
JEDDAH: Failing to report what one knows about the presence or plans of terrorists and extremists is a “grave sin” and makes the person who fails to do so an accomplice to the resulting actions, according to Abdullah bin Suleiman Al-Manae, a member o...
RIYADH: The World Assembly of Muslim Youth (WAMY) is a major player when it comes to relief work in countries wrecked by human tragedies, Secretary-General Saleh Al-Wohaibi said on Tuesday.He was addressing some 700 guests at the 13th annual iftar pa...
JEDDAH: The General Committee for the Municipal Elections has issued new regulations to oversee the polls, which will be taking place on Dec. 12, 2015.The rules released on Monday spelled out requirements for council members, list of violations and a...
JEDDAH: The Martyrs Fund has announced that it disburses 75 percent of its annual revenues to helping the needy families of martyrs, the wounded, prisoners of war and missing persons.Approximately 25 percent of the revenues is allocated for further i...
RIYADH: Prince Alwaleed bin Talal, chairman of Kingdom Holdings, has announced that his entire $32 billion fortune would be donated to charity after his death.The prince told reporters at his offices in Riyadh on Wednesday that he would move his asse...
MADINAH: Custodian of the Two Holy Mosques King Salman arrived in Madinah on Tuesday accompanied by several princes and senior officials for his first visit since ascending the throne. He was met at the airport by Madinah Gov. Prince Faisal bin Salma...
JEDDAH: The Council of Ministers has condemned the terrorist attacks in Kuwait, France, Tunisia and Egypt over the past few days.At its weekly meeting chaired by Custodian of the Two Holy Mosques King Salman on Monday night, the Cabinet said that the...
JEDDAH: The father of the suicide bomber who blew himself up in a mosque in Kuwait has blamed “evil” forces for his son’s behavior.Sounding confused and sad, Sulaiman Al-Gabbaa, the father of Fahad Al-Gabbaa, said: “An evil hand has sent my son to hi...
JEDDAH: The Saudi Traffic Department has denied that it is introducing new license plates for cars.It said hackers posted pictures of the supposedly new license plates on its Twitter account on Sunday. The department said the news, which went viral,...
JEDDAH: The Al-Haramain Train project is described as the largest public transportation project in the Middle East. This vital and strategic project is one of the implementation schemes of the mass expansion of the Saudi railway across the country.Th...
JEDDAH: The number of marriages between expatriates and Saudis has dropped 84 percent to 1,928 since the start of this Islamic year that began on Oct. 24, compared to the same period the previous year.The Ministry of Justice said that there were 12,0...

Stay Connected

Facebook