Saudi regulations target stock market speculators

Updated 17 May 2013
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Saudi regulations target stock market speculators

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


Wells Fargo to pay $1B for mortgage, auto lending abuses

Updated 20 April 2018
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Wells Fargo to pay $1B for mortgage, auto lending abuses

  • Fine the latest in a series of setbacks for US bank
  • Federal Reserve in February prohibited lender from growing assets until governance issues addressed

Wells Fargo will pay $1 billion to federal regulators to settle charges tied to its mortgage and auto lending business, the latest chapter in years-long, wide-ranging scandal at the banking giant. However, it appears that none of the $1 billion will go directly to the victims of Wells Fargo’s abuses.
In a settlement announced Friday, Wells will pay $500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net $500 million to the Consumer Financial Protection Bureau.
The action by the CFPB is notable because it is the first penalty imposed by the bureau under Mick Mulvaney, who President Trump appointed to take over the consumer watchdog agency in late November. The $500 million is also the largest penalty imposed by the CFPB in its history, the previous being a $100 million penalty also against Wells Fargo, and matches the largest fine ever handed out by the Comptroller of the Currency, which fined HSBC $500 million in 2012.
The fine against Wells Fargo had been expected. The company disclosed last week that it was in discussions with federal authorities over a possible settlement related to its mortgage and auto lending businesses, and that the fine could be as much as $1 billion.
The settlement also contains other requirements that would restrict Wells Fargo’s business. The bank will need to come with a risk management plan to be approved by bank regulators, and get approval from bank regulators before hiring senior employees.
“While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency,” said Wells Fargo Chief Executive Tim Sloan in a statement.
The $500 million paid to the Comptroller of the Currency will be paid directly to the US Treasury, according to the order. The $500 million paid to the CFPB will go into the CFPB’s civil penalties fund, which is used to help consumers who might have been impacted in other cases. But zero dollars of either penalty is going directly to Wells Fargo’s victims.
The bank has already been reimbursing customers in its auto and mortgage businesses for these abuses. Wells Fargo has been refunding auto loan customers since July and been mailing refund checks to impacted mortgage customers since December.
While banks have benefited from looser regulations and lower taxes under President Trump, Wells Fargo has been called out specifically by Trump as a bank that needed to be punished for its bad behavior.
“Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!,” Trump wrote on Twitter back in December.
The abuses being addressed Friday are not tied directly to Wells Fargo’s well-known sales practices scandal, where the bank admitted its employees opened as much as 3.5 million bank and credit card accounts without getting customers’ authorization. But they do involve significant parts of the bank’s businesses: auto lending and mortgages.
Last summer Wells Fargo admitted that hundreds of thousands of its auto loan customers had been sold auto insurance that they did not want or need. In thousands of cases, customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.
In a separate case, Wells Fargo also admitted that thousands of customers had to pay unnecessary fees in order to lock in their interest rates on their home mortgages. Wells Fargo is the nation’s largest mortgage lender.
Wells Fargo has been under intense scrutiny by federal regulators for several months. The Federal Reserve took a historic action earlier this year by mandating that Wells Fargo could not grow larger than the $1.95 trillion in assets that it currency held and required the bank to replace several directors on its board. The Federal Reserve cited “widespread abuses” as its reason for taking such an action.
This settlement does not involve Wells Fargo’s wealth management business, which is reportedly under investigation for improprieties similar to those that impacted its consumer bank. Nor does this involve an investigation into the bank’s currency trading business.
Consumer advocates have been critical of the Trump administration’s record since it took over the CFPB late last year. However, advocates were pleased to see Wells Fargo held to account.
“Today’s billion dollar fine is an important development and a fitting penalty given the severity of Wells Fargo’s fraudulent and abusive practices,” said Pamela Banks, senior policy counsel for Consumers Union.