JEDDAH, 2 June 2006 — The Capital Market Authority announced yesterday that it would reduce stock trading commissions by 20 percent.
Officials also announced that starting June 15 the trading week would be reduced from six to five days, or Saturday to Wednesday.
Saudi stocks ended the week on a higher note, gaining 11.8 percent as investors scoured the market for deals. The Tadawul All-Share Index closed at 11,610.93, or up 3.66 percent in the week’s strongest day of trading.
Analysts welcomed the news of the fee reduction, which will begin June 17, as another positive step in a recent series of decisions by the Capital Market Authority (CMA) to boost investor confidence and raise the volume of trading.
“The reduction in costs will encourage more investors to enter the market,” said Faisal Al-Sayrafi, president and CEO of Financial Transaction House. “All developed stock markets close on weekends, so this is normal.”
Al-Sayrafi also said that reducing the trading week from six to five days means there’s one less day in the week for small-time speculators to gamble their investment money in short-term speculating.
The five-day trading week might help reduce the amount of day trading, he pointed out, although other analysts have said that trading volume on the other days of the week may increase to make up for the lost day.
Said Al-Shaikh, senior economist for National Commercial Bank, said an increase in trade volume caused by the reduction in fees should offset the loss in banks’ transaction revenues.
The Kingdom does not have any brokerage houses; only the 10 existing banks handle stock market orders. The effect of the move to reduce commissions will vary from bank to bank, depending on their market share, said Al-Shaikh.
“Broadly speaking, the income from commissions in the first quarter of this year represent 30 to 35 percent of the banks’ revenue,” he said.
Quarterly revenue from transaction fees declined sharply after the bourse lost half of its market capitalization beginning in mid-February.
“The purpose of these decisions is to increase confidence in the market and in support of the investors, especially small investors who will perceive it as most beneficial to them,” said Al-Shaikh.
As for suspending trade on Thursday, Al-Shaikh said it will not be a major inconvenience for traders.
The Internet is increasingly becoming a tool for stock buyers, and Al-Shaikh said that banks were working on improving the system to meet the increasing volume of Web-based transactions.
The Tadawul closed one of its strongest weeks since the mid-February adjustment period began. Trading for the week reached SR102.9 billion.
Blue-chip Saudi Electricity led the trading for the week with 165.88 million shares, closing the week at SR18.5, up 10.45 percent from last week. Saudi Telecom Co. gained 14.53 percent in value to SR118.25.
The Kingdom’s largest listed bank, Al-Rajhi gained 20.9 percent to SR282.25. Savola gained 5.76 percent to close at SR114.75.
Saudi Basic Industries Corp. was the top performer, adding 23 percent in value and closing at 161.5 with SR5 billion in turnover.