Saudi regulator to overhaul IPOs, short selling within 90 days

Summary

• Saudi Arabia's CMA plans IPO, short-selling and algorithmic trading reforms within 90 days, its chairman said.
• Retail investors could be allocated 30% of offerings under proposals to broaden the investor base.
• The package targets weak retail participation and IPO quality on a market courting foreign capital.

The latest

Saudi Arabia's Capital Market Authority has prepared an implementation plan to roll out a package of market reforms within no more than 90 days, covering IPO allocations, algorithmic trading oversight and short selling. CMA board chairman Mazen Al-Sudairi, in his first media interview since his appointment, told Al Arabiya Business the regulator had identified the number of declining stocks, the quality of some listings and weaker retail participation as the problems it is targeting.

Details

• The retail quota: Al-Sudairi said the CMA fundamentally believes the retail share in public offerings should rise to 30%, presenting the change as a way to deepen the market and diversify its investor base. He did not set a date for the new allocation or say whether it would apply to all listings.
• IPO framework: The authority is working to redefine responsibilities among advisers, subscription managers and issuing companies, according to Al-Sudairi. He questioned whether high subscription coverage reflects genuine investment demand, arguing heavy oversubscription should not on its own be treated as a measure of an offering's success.
• Past offerings: Al-Sudairi said the CMA had investigated several previous offerings, without naming the companies involved or the outcome of those reviews. He said the regulator does not want to create fear in the market: "Our goal for the authority is to be a source of confidence, not intimidation."
• Short selling: The chairman described short selling as an internationally recognized financial tool that needs clear controls, and said there are indications some current practices could be having a negative impact. The CMA has begun regulating securities lending and is working to complete the regulatory framework for the activity.
• Algorithmic trading: A significant portion of algorithmic trading on the Saudi market is conducted by foreign financial institutions, Al-Sudairi said, adding that the authority monitors such activity continuously to ensure compliance and fairness among investors. He did not specify what new restrictions are being considered.
• Foreign ownership: The CMA is discussing foreign investor ownership limits with government agencies and sector regulators, according to Al-Sudairi, as part of an approach aimed at increasing the market's attractiveness while preserving stability. No proposed ceiling or timeline for a decision was given.
• Governance rules: Al-Sudairi said the regulator is focused on empowering shareholders and strengthening general assemblies. Listed companies are now required to hold two meetings a year with investors to discuss financial results, a requirement he framed as part of the wider push on market fairness.
• Outbound liquidity: On Saudi money flowing into international markets, Al-Sudairi said the CMA does not seek to dictate where investors place their funds, and that keeping liquidity at home should come from raising the market's competitiveness rather than imposing restrictions.
• The mandate: Al-Sudairi said the direction on his appointment from the Custodian of the Two Holy Mosques and the Crown Prince was to create fairness in the market and enhance its efficiency, with the longer-term aim of making the exchange a true representation of the Saudi economy and a place where citizens save.

Background

The 90-day package follows a separate Semafor Gulf report on the CMA's listing-rule overhaul, which argued the changes risked delaying a recovery in Tadawul initial public offerings. Al-Sudairi's interview is the regulator's first on-record account of what the reforms contain.

Between the lines

The two pressures Al-Sudairi named point in opposite directions. Raising the retail allocation to 30% and tightening scrutiny of advisers, issuers and oversubscription addresses weak domestic participation and listing quality, but adds friction for sponsors. Meanwhile the review of foreign ownership limits and the monitoring of algorithmic trading, much of it run by foreign institutions, bears on the investor class Riyadh is trying to attract.

What's next

The 90-day window set by Al-Sudairi puts the reform package due by early January. Watch for the published short-selling and securities-lending rules, confirmation of the 30% retail allocation, and any decision on foreign ownership limits.

Source: Saudi Gazette (via Zawya), interview with Al Arabiya Business