JEDDAH, 22 August 2006 — In a step toward more transparency aimed at increasing investor confidence, the Capital Market Authority approved regulations governing company announcements that could influence stock prices.
The new regulations require companies to disclose information and data that should be available to shareholders. According to the CMA, the regulations bolster transparency and discloser in the capital market in order to help investors make decisions based on correct and adequate information. The regulations also aim at helping shareholding companies comply with the registration and listing procedures issued by the CMA, especially with regards to continued disclosers.
“This step is a little late actually but it is very good toward transparency,” said Faisal Al-Sairafi, CEO of Financial Transactions House. “The shareholders will have available details of activities and decisions made by the companies, such as capital increase or rights issues or expansion plans. The shareholders will also be aware of problems that the company might be facing and all this help the investors make educated decisions.”
The CMA posted the new regulations on its website at the end of trading day on Sunday. The immediate result yesterday was a drop in market index with most indicators of the listed companies closing red, but experts and traders are optimistic of a positive market with all these new regulations.
The companies’ managers might not like these new regulations but they have to comply. Al-Sairafi expects these regulations would affect companies’ trade volume based on the disclosure.
“The information is crucial for sellers and buyers because it concerns not only the company’s future plans but also its performance and financial results,” said Al-Sairafi. “Some companies would announce plans that raise the stock price but do no implement those plans. This is misleading to the shareholders and companies making such announcements should be punished.”
The regulations specify the information that should be made available in all company announcements posted through the trading system. It focused on announcements of financial results, board members’ recommendations on increasing or decreasing capital, invitations for holding ordinary or extraordinary assembly meetings and the decisions of these meetings if held.
The regulations emphasized that the announcements should be clear with complete description of the main event and its expected effect on the company’s finances as well as any financial obligations on it. The company should take necessary care in checking that the facts related to the event or the consequences of it are true and not misleading. Also, it should not delete, hide or exaggerate any information that might result from the main event and the effects of which could be reflected on the company’s stock price presently or in the future.
Investors were happy with these latest CMA regulations that are meant to help them invest wisely, but some pointed out that they themselves have to learn more about the stock market and trading.
Small investors like Nadia Ali said that most of them especially the elder women do not understand the terminologies used even when the company discloses its financial results. “We have to educate ourselves and not trust everyone who gives us a tip,” she said.
