The Capital Market Authority (CMA) has begun consultations that could change how closing share prices are calculated and how long listed firms can trade with large accumulated losses, part of a drive to tighten standards in the market.

“The announced steps are definitely in the right direction in order to reduce speculation in the market and deepen its institutionalization,” John Sfakianakis, chief investment strategist at Masic in Saudi Arabia, told Arab News, commenting on the CMA’s latest moves.

“And obviously the cap on IPOs are welcomed by foreign institutional investors as this will create an opportunity for them to buy any new listed company in multiple sectors or any other sector at normal valuations,” he added.

Also, he said: “The decision to require action on companies that have lost 50 percent of their capital is intended to protect investors against the capital dilution and make the market proactive. These are very positive decisions that only helps deepen the stock market.”

CMA chief Mohammed bin Abdulmalik Al-Sheikh, who was appointed in February, said recently that the regulator was trying to limit “high levels of speculation” in the stock market and encourage more investment by institutions rather than individuals.

The CMA is discussing with industry participants a proposal to calculate a stock’s closing price using the average price in the last 15 minutes of trading, weighted by volume, instead of simply the price of the last trade, it said in a statement, cited by Reuters.

The consultation will close on May 31, and follows a study recommending the move that “included global benchmarking and consultation of industry experts,” the CMA added.

A second proposal would begin sanctioning listed firms if their accumulated losses exceeded 50 percent of their capital, as opposed to the current regulation which does so when they hit 75 percent.

The announcement comes days after the authorities ordered the delisting and liquidation of Saudi Integrated Telecom Co., a relatively small and new firm which had struggled for months under the weight of its losses.

“Many experts were calling for such a decision to separate good companies and others at risk,” Mazen Al-Sudairi, senior financial analyst at Al-Istithmar Capital, said of the proposal on loss-making companies.

“This will benefit the national economy as it will make sure society’s savings are not wasted on failed companies.”

Under the proposal, firms whose accumulated losses exceeded 50 percent of their capital would be required to announce plans immediately to remedy their financial positions and make monthly disclosures to the bourse on their progress, Reuters said.

If such a proposal were introduced today, four firms — one in agriculture and three in insurance — would find themselves over the 50 percent accumulated losses limit, according to Turki Fadaak, head of research at Al Bilad Investment Co.

News of the proposal sent share prices of many small-capital firms lower on Monday; Al-Ahlia Cooperative Insurance Co. slumped its maximum permitted move of 9.8 percent.

On Sunday, the CMA announced that stocks on the Kingdom’s bourse would be limited to price swings of 10 percent on their first day of trade, as opposed to the unlimited movement allowed previously — another step to reduce volatility and speculation.

“CMA is developing a strategy to promote institutional trading...” Reuters quoted Al-Sheikh saying last week. He added:

“While out of the total 47 billion stocks listed 45 percent are held by individuals, nearly 93 percent of daily trading is done by retailers.”

Fawaz H. Al-Fawaz, a, Riyadh-based Economic Consultant, told Arab News: “The CMA is trying to make market more stable by making it more institutional. When it is run by an institution, it will become less prone to speculation, particularly when the market is dominated by individuals.”

He added: “As the CMA is headed by a lawyer, I think there is an improvement in regulatory framework.”