JEDDAH, 24 October 2005 — The Capital Market Authority (CMA) was established a little over a year ago to supervise and improve the standards of trade at the Saudi stock market. As the stock market expands and faces new challenges, the CMA continues to review and introduce regulations that protect the companies and investors. With money pouring in the stock market and amateur investors making substantial profits and losses, the need became apparent for strict and transparent regulations.
Many small investors complain of the big sharks (hamoor) controlling the stock market and playing with share prices by buying or selling in huge amounts. Other investors find the banks’ monopoly on stock trading and portfolios restrictive and unfair. Analysts see the stock market as still small with few large companies such as SABIC (Saudi Basic Industries Corp.) and SEC (Saudi Electricity Co.) dictating its index and therefore not offering much of an opportunity for investors to diversify or to indulge in speculative trading.
As Saudi Arabia’s entry in the World Trade Organization is near and the need is growing to address these issues. CMA has implemented and is considering new regulations to attract investment and improve the stock market. “The CMA has been established a little over two years now, so we are a new system and with experience and observations we make changes that are needed,” said Dr. Abdul Aziz Al-Zoom, spokesperson of CMA. Recently, the CMA announced the regulations for licensing brokerage firms as financial consultants and share traders, but so far the firms that have been licensed are not licensed for share trading and portfolio management; that is still the banks domain.
A more immediate concern for many small traders is identifying and prosecuting bogus and unlicensed activities by individuals alleging to be financial investors and collecting millions of riyals from unsuspecting people. The CMA has launched awareness campaigns educating people about who is licensed, how to beware of scams and find out about legitimate brokers.
Last month it put a warning to both individuals and firms in local papers against collecting funds to invest in bonds, setting up investment funds or promoting stocks, bonds and other financial papers, or carrying out any brokerage or financial consultancy service without receiving proper license from the authority. Last week it began running a television and newspaper advertisement for traders urging them to rely on facts and professionals and avoid following and spreading rumors on the stock market.
There are still other concerns and complaints by traders. Some have complained that banks delay executing their orders thus causing them to loose money. Dr. Al-Zoom said that they have the right to file a complaint and the CMA receives all kinds of complaints. Traders for their part have to provide proof of their claim for the CMA to investigate and prosecute.
Some traders had suggested that in order to reduce the effect of large companies’ stock movement the CMA should consider splitting these companies into smaller companies or splitting the index into large and small companies. Dr. Al-Zoom finds this suggestion premature because there are only 77 companies trading in the Saudi stock market and therefore it would not make sense to split the index. As for splitting the companies, that is up to the companies. However, he explained that with the rise of the index and market value the effect of large companies tend to decline.
As the number of traders and analysts increases, they demand better and faster service in terms of real-time trading and execution. Many are asking for advanced technology to support this service and overcome the problem of five-minute-delay in transmitting stock market index. “Real-time trading is available for those who wish to purchase that service through a provider,” said Dr. Al-Zoom.
Another observation made especially recently with the refusal of CMA to approve the raising of capital of some companies, is to prevent unprofitable companies from increasing their capital and implementing new regulations for increasing shareholders shares in a company and allowing for an IPO. “If a company wishes to increase their capital they apply and must give reasons based on official financial statements. The CMA board reviews the application and makes its decision,” said Al-Zoom.
Recently, CMA had gained more credibility and traders’ confidence when it announced the halting of activities and punishing certain investors and brokers for illegal activities. The continued monitoring and development of stock trade is contributing to the higher trade volume, market index and overall improved investment climate.