JEDDAH, 3 December 2004 — Saudi Arabia’s Capital Market Authority (CMA) yesterday announced three important executive bylaws aimed at regulating the market, worth SR500 billion, encouraging the public to invest in stocks with confidence and preventing fraudulent practices. The new laws regulate flotation of bonds, set out the principles for the enrollment of bonds and elucidate market etiquette.
Jemaz Al-Suheimy, head of the authority, highlighted the significance of the three laws, saying they would protect investors and preserve market credibility without putting any unacceptable burden on the shoulders of investors, intermediaries and financial consultants. He said the CMA was keen on expediting the shifting to the new capital market system.
Suheimy said the new laws would encourage the formation of more joint stock companies and contribute to enhancing fair and transparent stock market dealings. “This will encourage more Saudis to participate in the financial market and help the market achieve high degrees of transparency and confidence,” he pointed out.
“The new law on enrollment of bonds demands from joint stock companies enlisted in the market to make frank and continuous statements while the flotation law explains the types of issues acceptable to the market as well as the terms and conditions to be fulfilled by companies,” the CMA chief said. The law allows public and private flotation of bonds.
The principles for the enrollment demand from companies to make frank statements on everything that affects prices of bonds issued by them to ensure open access to correct information for all investors. “CMA will coordinate with all companies enlisted on the market to implement this rule effectively,” he added.
He said the new laws were formulated in the light of regulations prevalent at international capital markets and after consulting legal and financial experts within and outside the Kingdom.
“The law incriminates deals based on internal information and bans issuance of incorrect information. It also sets out acceptable principles for the relation between investors and intermediaries,” he explained.
The law prohibits false stock exchange deals, manipulation of opening and closing prices and making orders for bonds without any intent to implement them.
“It also prohibits officials, including board members and administrators, from leaking sensitive information that would affect prices of bonds if made public,” he said. The law allows clients who suffered losses as a result of wrong information to take legal action against those who published them, claiming damages.
“The new regulations make sure that investors get a fair price and their sales and purchase orders are carried out in tune with professional norms,” the CMA chairman said. The law prohibits intermediaries from carrying out deals if they know the client has violated the system and market etiquette. The Capital Market Law specifies stringent punishment against those who violate the law. Details of the three laws are available on CMA’s website www.cma.org.sa
The stock market in Saudi Arabia has a long history, since shares were first offered to the public in 1954. The market remained informal until the mid-1980s when a higher committee was formed to regulate it. “Tadawul”, a new infrastructure for the market, was implemented in 2001. Since then, the market has grown significantly. By June 15, 2003, market capitalization stood at over SR477 billion confirming Saudi Arabia as the largest market in the region.
