SAUDI STOCK MARKET
The history of the Saudi joint stock companies may be traced to the 1930's when the first joint stock company, the Arab Automobile Company, was established in 1934. In 1954, the Arabian Cement Company went public and was followed by the privatization of three electricity companies. In response to the needs of the economic development of that period, more joint stock companies were established.
The Saudi Stock Market began to emerge in the late 1970’s when the number of joint stock companies increased considerably. The government merged the electricity companies and distributed additional free shares to contributors. The government also nationalized (Saudized) foreign banks and their shares were offered to Saudi nationals. These factors contributed to the increase of shares available to the public and the need for share trading.
However, due to the lack of trading regulation at the time, stock trading was fairly limited through the early 1980’s when oil prices were increasing, which in turn resulted in an increase in both volume of trading and market capitalization.
In 1985, the Saudi government placed all stock trading under the supervision and control of the Saudi Arabian Monetary Agency (SAMA) and discontinued the existing broker-based stock trading system. The government then authorized the domestic commercial banks to act as brokers in order to protect the market against the adverse effects of speculation and to help it develop and mature. This was also done so that the stock market could develop in a manner that would contribute to national development and was consistent with its policy of greater private sector participation.
The Saudi Share Market has been listed in a database supervised by the International Finance Corporation. This supervision indicates the IFC's recognition of the importance of the Saudi Share Market, which occupies an advanced position amongst new markets in many important indicators, including market value, the daily average of shares value, and the price percentage of the annual profit (PE/R).
On November 23, 1984 (17/1/1403 H), Royal Decree No. 1230/8 was issued to establish the Saudi Share Registration Company (SSRC), which was to be sponsored by local commercial banks under the supervision of the Saudi Arabian Monetary Agency (SAMA). The SSRC is currently in charge of managing the records of shareholders and share certificates, as well as providing support facilities for transactions and transferring and registering ownership of transactions automatically. This was the beginning of a new era for establishing a specific regulatory system for electronic share trading.
With the exception of investment funds where only 5% of each company’s shares are available to each citizen, there are no limits on Saudi citizens trading shares of Saudi joint stock companies. The GCC citizens are allowed to invest in certain companies and within limited percentages according to a decision of the GCC. Non-GCC nationals are not allowed to invest directly in Saudi companies except through closed investment funds. The first closed investment fund was launched in 1997 by a local bank in collaboration with a foreign bank. The purpose of this procedure is to open the market gradually to attract foreign investment and acquaint foreign investors with the local economy.
A new system known as “ tadawul ” was introduced by Saudi Arabian Monetary Agency (SAMA) in the year 2001 for share trading, clearing, and settlement. The new system provides an efficient, accurate, short trading cycle and speedy settlement.
The Capital Market Authority (CMA)
The Capital Market Authority was established by the Capital Market Law, issued by Royal Decree No. (M/30) dated 2/6/1424 H (June 16, 2003). The CMA is a government organization with financial, legal and administrative independence. It reports directly to the Prime Minister.
Duties and Authorities
The CMA enjoys authority to:
- Regulate and develop the capital market.
- Protect investors and the general public from unfair and unsound practices involving fraud, deceit, cheating, manipulation and insider trading.
- Achieve fairness, efficiency and transparency in securities transactions.
- Develop measures to reduce the risks pertaining to securities transactions.
- Develop, regulate and monitor the issuance and trading in securities.
- Regulate and monitor the activities of entities subject to the control of the CMA.
- Regulate and monitor full disclosure of information related to securities and their issuers.
- Regulate proxy and purchase requests and public share offerings.