JEDDAH, 19 July 2005 — Saudi Arabia’s Capital Market Authority (CMA) yesterday issued new laws allowing the establishment of independent financial brokerage firms and ending the monopoly of Saudi banks on share trading in the country.
In a statement, the CMA, the Kingdom’s stock market watchdog, outlined the requirements for setting up brokerages. “Traders in the market must be based in the country,” said CMA Chairman Jemaz Al-Suhaimy.
Traders must be either companies affiliated to a local bank, joint stock companies, companies affiliated to a Saudi joint stock company that provides financial services, or companies affiliated to licensed foreign financial institutions. Applicants for a trading, asset management or custody license must have a paid-up capital of no less than SR50 million ($13.3 million), though much smaller amounts are required for arranging stocks (SR2 million) and consultancy services (SR400,000).
“It’s going to increase the efficiency of the market and make it more controlled and transparent,” said Nahed Taher, senior economist at National Commercial Bank, about the new regulations.
Nahed said the introduction of brokerage firms would also expand the level of financial expertise and help reduce the speculative trading among individual investors.
Dr. Abdulwahab S. Abu-Dahesh, a Saudi economic and financial expert, told Arab News that this is the first move by the CMA to regularize informal traders. “This will give more confidence to investors to deal with legal identity with clear objectives. The Kingdom is heading for a new era of investment services,” he added.
Suhaimy listed trading, arranging, asset management, advising and custody as activities that require a license and said local banks have up to two years to set up affiliates to trade in the bourse. However, the CMA chief emphasized that brokerage firms applying for license should have adequate expertise and qualifications and extend their services in a professional manner in order to strengthen and stabilize the market.
Hisham Abu Jamee, a senior financial analyst with Bakheet Financial Advisers (BFA), described the new CMA laws as “a leap forward,” adding that the move would upgrade services for investors. Banks will have to separate their investment activities from their commercial operations within two years, by either splitting into two entities or establishing joint stock companies to operate in the bourse.
According to a recent report, capital markets in Saudi Arabia and the five other Gulf Arab states made an impressive 76 percent rise in value to $927 billion in the first half of 2005, on the back of high liquidity fed by a surge in oil income.
The report said the Saudi stock market accounted for more than half of the market capitalization in the six GCC states at the end of June at $517.4 billion, 2.5 times its value a year ago and 69 percent up on its 2004-end value of $306 billion.
But the Saudi bourse has been fluctuating in recent days and its capitalization has fallen to under $500 billion as it awaits half-year results of market leader Saudi Basic Industries Corporation.