The Council of Ministers has passed the Saudi Arabian Capital Markets law, which establishes the framework for the Kingdom’s capital market.
The law comprises the following:
The establishment of the Saudi Arabian Securities and Exchange Commission
to protect the interests of investors, to ensure orderly and equitable dealings in the securities business, and to promote and develop the capital market. The law vests the Commission with powers to license financial intermediaries and to authorize offering securities to the public. The law also establishes the Saudi Arabian Stock Exchange (SASE), incorporating the national securities depository centre.
The Cabinet said that the Capital Markets law would facilitate the licensing of financial intermediaries and the issuance of an increased number and variety of securities. The Capital Markets law will result in the restructuring of the capital market in Saudi Arabia based on international best practice, promoting greater efficiency and transparency. The law is integral to the government’s aim of privatisation, which will generate increased participation by citizens in the capital market and thus the national economy.
The Cabinet said that the Commission would be governed by five commissioners, who will be appointed by Royal Decree. The Commission will develop and regulate a capital market that is dynamic, fair, transparent and efficient, and will contribute to the nation’s economic development. The Securities and Exchange Commission SEC will be the primary regulatory body for the Saudi Arabian capital market. The new law is expected to promote a stronger, more efficient capital market, which will meet the nation’s economic and developmental aspirations. The Commission will endeavour to deepen and broaden the market to enhance socio-economic development.
In order to enable SEC to achieve the objectives of investor protection and capital market development, the Commission will:
· Regulate investments and securities in Saudi Arabia; register and regulate the Saudi Arabian Securities Exchange (including the national securities depository)
· Register securities to be offered for subscription or sale to the public; organize training programmes and promote high ethical standards
· Register and regulate non-bank financial intermediaries, including members and employees of the Stock Exchange, and others involved in the organization and operation of the capital market, including custodians of securities and credit-rating agencies
· Protect the integrity of the securities market against abuses arising from the practice of insider trading
· Review, approve and regulate mergers, acquisitions and all forms of business combinations
· Provide investor education and promote investor awareness
· Prevent fraudulent and unfair trade practices relating to the securities industry
· Perform such other functions and exercise such other powers not inconsistent with the law as necessary or expedient for giving full effect to the provisions of the law.
The Cabinet said that the Stock Exchange, which incorporates the national securities depository, will be a private sector company. The Board of SASE will initially consist of nine members, three from the government (the Ministries of Finance, Commerce and SAMA), and six from among shareholders of the Exchange. SASE will be the only stock exchange in the Kingdom, and will perform the following functions:
· Ensure the fairness and transparency of markets operated by the Exchange
· Admit members (both brokering and clearing)
· List and explain the requirements and conditions for the listing of securities
· Promote high ethical standards among members, their employees and market participants
· Promote high standards of corporate governance
· Ensure timely and accurate dissemination of market information
· Establish and operate a nation-wide system for securities trading, settlement clearing and depository, in order to protect investors and maintain fair and orderly markets
· Provide modern communication and data processing facilities in order to foster efficiency, enhance competition, and increase the information available to market participants.
Shares were first offered to the public in the Kingdom in 1954. The market remained informal until the mid 1980s, when a Ministerial Committee comprising the Ministers of Finance and Commerce and Governor of the Saudi Arabian Monetary Agency (SAMA) was formed, with overall responsibility for market regulation and development. Saudi Arabia introduced the world’s first fully electronic market in the early 1990s, comprising trading, clearing settlement and depository. A new infrastructure for the market (Tadawul) was implemented in the year 2001. The market has grown significantly during this time.
By 15 June 2003, market capitalization stood at over SR477 billion (US$127 billion), which confirmed Saudi Arabia’s market as the largest in the region, and one of the largest emerging markets in the world. The number of companies listed on the market remains comparatively low, at 65. Trading in shares on these companies is limited to Saudi nationals and citizens of other Gulf Cooperation Council (GCC) member states. Non-GCC nationals participate in the market by investment in ope-end mutual funds offered by Saudi Arabian banks.
Source: SPA
