Omens of financial market reforms

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The interview of His Excellency Mr. Mazen bin Turki Al-Sudairi, Chairman of the Board of the Capital Market Authority, with “Arabia Business” carried omens of reforms that touch the most prominent concerns of investors of all categories and investment cultures, and place enhancing the fairness of transactions and restoring confidence in the market at the top of priorities, which contributes to increasing its attractiveness for investment and enhancing its levels of liquidity.

Perhaps the most notable thing that struck me in the interview was the clarity of the diagnosis of the challenges that require reform. Al-Sudairi pointed to the decline in a number of stocks, the quality of some initial offerings, and the reluctance of individual investors. These are files that are directly related to customer confidence, and deserve to be at the forefront of treatment. Also, announcing a plan to launch reforms within ninety days gives these trends a time frame that can be followed, while keeping in mind that the announced period relates to launching reforms, but their results will become clear with implementation.

In the IPO file, the interview reconsidered relying on the number of coverage times as a criterion for the success of the IPO. What matters is the quality of applications, their credibility, and the extent to which they express a real investment desire. The Chairman of the Authority explained that high coverage alone is not enough to judge the success of the offering, and that the performance of the stock after listing represents an important indicator for its evaluation. In my opinion, the importance of this trend lies in linking the success of the IPO to the investor’s experience as a partner in the company, the results it achieves, its level of disclosure, and the extent to which it fulfills the expectations it presented at the time of offering.

Related to this is the Authority’s move to redefine the responsibilities of the parties participating in the offering and listing processes, including issuing companies, advisory bodies, and subscription managers. Al-Sudairi indicated that the Commission had conducted investigations into a number of previous proposals, stressing its endeavor to be a source of trust, and that its role should focus on organizing and achieving balance between the parties. In my opinion, this trend reflects the importance of clarity of responsibilities. Defining the duties of each party creates more effective accountability and contributes to protecting investors’ rights and enhancing confidence in the offering and listing procedures.

As for individuals’ participation in the market, the interview revealed a trend to raise their basic share in IPOs to 30%, with the possibility of the percentage varying in large IPOs. This trend is awaiting clarification of the details of its implementation. In my opinion, increased allocation gains its value when combined with the quality of the companies offered and the clarity of their disclosures, which enables the individual investor to make an informed decision and assess the risks. This trend may also contribute to expanding the shareholder base and encouraging individuals to invest, by providing greater opportunities to participate in the ownership of companies and benefit from their growth, thus enhancing the role of the market in developing individuals’ savings in the long term.

Regarding trading tools, Al-Sudairi addressed short selling, noting its benefit to the market when used properly, and the need to work on new controls for it after starting to regulate stock lending. He also talked about monitoring algorithmic trades and verifying their compliance with the regulations in a way that maintains fairness among investors. These two axes can be read as an attempt to balance developing market tools and monitoring the impact of their use. The success of the tool is linked to the integrity of the practice, the clarity of its rules, and the ability of the organization to address violations.

The discussion extended to the attractiveness of the market for foreign investors, as Al-Sudairi revealed discussions with government agencies and sectoral regulators regarding the permitted ownership percentages. This is a file that is still under discussion, and it is not correct to present it as a final decision to increase the percentages. As for its significance, it could be represented in seeking to expand the investor base, within coordination that takes into account the nature of the sectors and their requirements.

Regarding the governance and transparency file, he indicated that listed companies are obligated to hold two annual meetings to discuss financial results with investors, explaining also that setting standards for remuneration for board members does not fall within the Authority’s jurisdiction. I believe that results meetings can give the shareholder a better opportunity to understand the company’s performance and discuss its management, provided that their benefit is measured by the quality of the information and answers they provide, and the extent to which they help the investor in making his decision.

Among the messages worth stopping at are: His position on the orientation of local investors to global markets; He emphasized the freedom of the investor to choose his destination, and linked maintaining liquidity to enhancing the competitiveness of the Saudi market and confidence in it. This is a vision that places a continuous responsibility on the market to improve its attractiveness, through the quality of opportunities, clarity of systems, and efficiency of services. The investor compares the available alternatives and gives his confidence to the environment in which he finds what serves his goals.

In conclusion, His Excellency Mr. Mazen Al-Sudairi deserves praise for his initiative to appear in the media early in his assuming responsibility, and for the transparency and objectivity of his speech in presenting the market’s challenges and the priorities for addressing them without sending a message of intimidation and pessimism, thus reflecting the clarity of vision and knowledge of market conditions based on his accumulated experiences, which contributed to his readiness to initiate reform since the beginning of his assuming responsibility.

The announcement of a plan to launch broad reforms within a period not exceeding ninety days inspires optimism and confirms his keenness to translate trends into practical steps. This is an encouraging beginning, in which we hope that the efforts of the Authority and stakeholders will be integrated, and will result in a more fair, efficient and attractive market, thus enhancing investor confidence and supporting its role in serving the national economy and developing citizens’ savings.