Saudi Arabia recently promulgated a long awaited law to formally regulate the country's stock market. Saudi Arabia does not have a physical stock exchange, although shares are traded by electronic means through local banks and are regulated by the Saudi Arabian Monetary Agency (SAMA), the Kingdom's central bank. The electronic exchange (Tadawal) and the Saudi Shareholding Registry will be transferred to the new capital market authority. The new market will be named the Saudi Capital Market and will be established as a joint stock company. The new law calls for setting up two new bodies: The Saudi Arabian Stock Exchange and The Exchange Commission.
The law provides for protection of investors' interests and is meant to create a more efficient and transparent stock market. While the regulations were not publicly available when this publication went to press, it is understood that the regulations contain provisions on: (i) the licensing and suspension of brokers; (ii) the prohibition of insider trading and purposeful manipulation of the market; (iii) listing requirements for public companies; and (iv) disclosure of material changes that would affect the price of a listed company's securities. It is also understood that the law paves the way for foreign financial institutions to enter the Saudi Arabian market, although such entries will likely be phased in over a period of years.
The regulations are seen as a crucial element to the Kingdom's planned privatization program. Saudi Arabia had earlier announced its intentions to privatize approximately 20 sectors of the economy. It is expected that the introduction of the Saudi Capital Market will spur the repatriation of the substantial amounts of Saudi capital invested overseas.
Stephen P Matthews and Nabil A Issa