JEDDAH, 30 August 2005 — Following a string of bogus and unlicensed activities by individuals alleging to be financial investors and collecting millions of riyals from unsuspecting people, the Capital Market Authority (CMA) has taken steps to curb the activities until it issues licenses for authorized investments. The CMA began by putting 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.
“Before we published this advertisement, the authority had announced its laws for the establishment of brokerage firms and many firms have applied for licenses but none have been issued yet, so investors should refrain from handing their money to individuals or firms claiming to be brokers or having investment funds,” said a source at CMA to Arab News.
In a statement issued in July, CMA outlined the requirements for setting up brokerages, which would end the monopoly of Saudi banks on share trading in the country. The requirements include that the traders in the market be based in the country and that they 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).
CMA Chairman Jemaz Al-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.
This step by CMA was hailed by experts as a positive move toward increasing the efficiency and transparency of the market, increasing investors’ confidence by reducing speculative trading and regularizing informal traders. However, recent scams have created a sense of distrust among investors who have called for CMA’s immediate interference in stopping these individuals and firms and announcing the licensed brokers.
“The licenses will be issued soon to the firms that meet the requirements and investors can call the toll-free number to check whether a firm is licensed or not before they invest with them,” said the CMA source. He said that in the meantime the only licensed companies to trade in shares are banks. “We will follow up on the individuals and firms that have collected money for the purpose of investing in the stock market without a license and punish them according to the regulations that are being drafted for implementation,” he said.
The warning includes individuals and firms working at promoting stocks, bonds and other financial papers and those providing financial consultancy services. Some reports estimated the number of individuals and businesses participating in these activities as well as those managing investment funds illegally in the Kingdom to be about 250.
