Saudi stock regulator plans to tighten rules
Riyadh, May 13, 2013
The Saudi Capital Market Authority 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.
Saudi Arabia, home to the Gulf region's largest stock exchange, has been slowly amending its regulatory framework to bring it closer to international standards; market participants hope this will allow the bourse to open to direct investment by foreigners, a step which authorities are considering.
CMA chief Mohammed bin Abdulmalik Al Al-Sheikh, who was appointed in February, said last week 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 on Monday.
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.
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..." Al-Sheikh said last week, adding: "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." - Reuters