JEDDAH, 13 August 2007 — The Saudi stock market trading was dominated by the banking, telecom and insurance sectors yesterday. The Tadawul All-Share Index (TASI), after closing down for two consecutive sessions on Wednesday and Saturday, rebounded yesterday and crossed the 7,800-point mark. The index gained 93.79 points or 1.22 percent to close at 7,804.76.
The Banking Index jumped by over 400 points as shares of all banks made hefty gains. Saudi Hollandi Bank shares increased by 5.76 percent to SR50.50, Bank AlJazira by 5.37 percent to SR54, Samba Financial Group by 2.77 percent to SR120.50, Bank Albilad by 2.54 percent to SR30.25 and Al-Rajhi Bank by 1.26 percent to SR80.25.
Saudi Telecom Co. (STC) and Etihad Etisalat shares rose 1.45 percent to SR69.75 and 3.10 percent to SR66.50, respectively.
In the insurance sector, the only loser yesterday was SABB Takaful as shares in all other companies increased sharply. Its shares closed slightly down at SR178.75. Shares in Sanad Insurance & Reinsurance Cooperative Co. (Sanad) soared by 10 percent to SR74.25, Saudi IAIC Cooperative Insurance Co. (Salama) by 9.92 percent to SR133, Malath Cooperative Insurance and Reinsurance Co. by 9.79 percent to SR78.50, the Mediterranean & Gulf Insurance & Reinsurance Co. by 9.66 percent to SR48.25 and Arabian Shield Cooperative Insurance Co. by 5.82 percent to SR77.25.
Shares in Emaar the Economic City and Jazan Development dropped by 3.12 percent each to SR15.50 and SR23.25, respectively.
The agriculture sector was in the red yesterday.
Out of 98 stocks, shares in 49 companies increased while 34 companies were in negative territory.
The stock market turnover also passed SR8.20 billion yesterday.
In the wake of the stock market crash in February last year, several manipulators in the market, who are nicknamed “sharks”, staged a comeback, largely focusing on the smaller companies which could more easily be preyed upon than the large ones. “Any agreement between speculators on deals involving stocks or bonds with the aim of misleading the investors and thus getting an unrealistic price is deemed a manipulation,” Asharq Al-Awsat newspaper quoted Hazza Al-Fagm, a Saudi legal expert, as saying on Saturday. “It is a violation of the regulations governing the Saudi stock market,” he added.
A leading speculator in the Saudi bourse, on condition of anonymity, said that smaller companies were easier to manipulate because of their low price and limited number of shares. The “sharks” are able to inflate or bring down the share prices artificially with the help of some illegal activities. After sending the prices to artificial heights, they sell the stocks and then the prices fall down leaving the cheated customers penniless.
The deals of the “sharks” are shrouded in mystery and they operate with utmost secrecy. As a precaution, they do not make any written documents for their deals in order to conceal the evidence of their operations. This is one of the clever ways in which they manage to escape legal action when their activities are found out by the Capital Market Authority (CMA), the stock market regulator.
In order to hoodwink CMA, the “sharks” operate under the cover of various portfolios. The portfolios are either owned by the “sharks” themselves or other collaborators who give a free hand to the “sharks” to make any decision regarding the selling, buying, commission rates, profit margins, etc. They operate out of luxurious offices and closely follow the developments on the bourse. The sharks have their secret ways to learn the tendencies of the managers of various investment portfolios including the volume of stakes the portfolios own in various companies.
The “sharks” have learned from experience that it is less risky to work in a group than operating alone. So they form a group working at different centers. Each will have his own valuable information and they jointly make decisions as to which company should be their center of illegal activities and then start buying its shares. They make sure that no outsiders buy these shares in large numbers. If large number of shares leaves their control, the “sharks” will not be able to take unilateral steps on the shares and make large profits. Their operations are carried out mostly on the Internet so that they leave no trail for investigating bodies.
However, the CMA is trying to track down illegal share manipulators and punish them by deterrent measures. It also has sought the help of specialized Scandinavian trading technology vendor OMX to track down the malpractices on the bourse, according to Abdul Rahman Al-Tuwaijeri, chairman of the CMA. The OMX system, when it is in place, will help CMA observe all deals made on the bourse and enable it to have total supervision.
The new system will also expand the capacity of the CMA to deal with two million transactions a day besides processing millions of orders for buying and selling each day.
Another significant feature of the OMX is that it will close various loopholes in the present system and make illegal deals virtually impossible, according to an expert in the field. The system is also capable of detecting the sources of various orders and signals that could result in illegal influence on trading trends in the market.
According to Khaled Eid, general manager of the IT company Al-Hasib Al-Arabi, “There is no system in the world that can totally discover manipulations on the bourse. However, there may be systems that discover 75 percent of the illegal operations.” Eid said the close cooperation between the country’s telecom regulatory authority, CMA, telecommunication companies, the King Abdulaziz City for Science and Technology, and the Internet service providers is essential to bring an end to cheating and illegal practices in the stock market.
