JEDDAH: The Saudi stock market reacted negatively yesterday to the new transparency rule announced by Tadawul. The names of investors with stakes of 5 percent or more in firms listed in the Kingdom are to be published starting Aug. 16 to boost transparency and disclosure practices in market dealings.

A list of the largest shareholders in publicly traded Saudi firms will be updated at the close of trading each day, Tadawul said in a statement. “Providing such essential information will enhance the level of investors’ confidence and will enable them to make appropriate investment decision,” it said.

The Tadawul All-Share Index (TASI) plunged 107.24 points or 1.23 percent to close yesterday at 8,633.50 on a market turnover of SR5.85 billion. The index has been the worst performer in the Gulf Arab region so far this year, going down 21.79 percent.

John Sfakianakis, chief economist at SABB (Saudi British Bank), said the Tadawul’s disclosure rule was a step toward making the Saudi equities market more transparent. “The disclosure requirement is part and parcel of a modern stock market and is very much part of the global debate on transparency.”

He said the 5 percent requirement would help the equities market in gaining ownership knowledge. Market knowledge of who owns what is an important contributor to making fellow shareholders, or prospective shareholders, know who is building a sizable stake-holding position, he said. Building a fast stake in a company will become more difficult and probably more expensive. It will also help boost level playing field rules. Ownership rules could compel companies, as long as they are legally enforced, to reveal their plans in a short period of time to both the management of the company and to fellow investors. “Timing of the disclosure requirement is of paramount importance because in today’s financial markets a few days is boundless years,” Sfakianakis said.

“All in all, the direction taken by the Tadawul is very positive. Investors may look at it with suspicion now and may resist the change, which could cause short-term market volatility. But disclosure is a key component of international standards’ reporting requirements. The transition from a corporate culture defined by lack of transparency to an economy characterized by full or near-full disclosure, requires a fundamental shift in attitudes,” he added.

Howard Handy, general manager and chief economist of Samba Financial Group, said it looked like this was an initial reaction of investors. Tadawul was moving in the right direction to make the market more transparent. “Tadawul deserves support because it is taking innovative measures to improve the market in the long-term,” he said. “As oil prices are very high, the Saudi Arabian economy is likely to remain robust in the near future with major projects under way.”

Reacting to the market’s response yesterday, Abdullah Al-Rashoud, chief executive of KSB Capital, said: “People are selling after the announcement as they interpreted it negatively.”

He added: “Some investors don’t want it to be known for many reasons — economic, social and sometimes even political, especially if it involves government officials.”

The Kingdom’s stock market, the largest in the Arab world, is dominated by day traders and has been trying to improve transparency and gain more institutional investors since a market crash in 2006.

When the Kingdom decided to cancel an evening trading session in late October 2006, the index tumbled almost 25 percent in less than two weeks. The index also dropped more than 4 percent one day earlier last month after the exchange said it planned to adopt a more flexible pricing system to better reflect what investors deem to be the fair value of stocks.

Most Gulf countries place restrictions on investors from outside the region buying shares. The Saudi stock market regulator said last December the Kingdom would gradually begin allowing foreign money in through licensed firms.

— With input from agencies