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Saudi regulations target stock market speculators

Saudi regulations target stock market speculators

May 15, 2013 6:03 by



On Sunday, the CMA announced stocks would be limited to price swings of 10 percent on their first day of trade, as opposed to the unlimited movement allowed previously. A 10 percent daily limit is already applied after listing day.

By slowing the ascent of newly listed stocks, the new rule may give institutional investors, which tend to have longer-term horizons, more time to buy into them.

“This is a step towards a more sophisticated market – the price of the IPO will hold more value,” said Tariq Alalaiwat, international sales manager at NCB Capital. “Usually, books are more inflated than they need to be, and people buy into loss-making companies for a quick buck.”

The new rule might end debacles such as the case of National Medical Care Co, which listed on March 13. It rocketed to an intra-day high of 200 riyals from its initial public offer price of 27 riyals, but ended its first day at 122 riyals and by March 31, had slid back to 72 riyals.

On Monday, the CMA said it was discussing with industry participants a proposal to calculate a stock’s closing price using the average in the last 15 minutes of trading, weighted by volume, instead of simply the last trade. This would make it harder for traders to manipulate the closing price.

The CMA also proposed sanctioning listed firms if their accumulated losses exceeded 50 percent of their capital. The current regulation sets a threshold of 75 percent.

Earlier this month, authorities signalled they were serious about such standards by ordering the delisting and liquidation of Saudi Integrated Telecom Co, a relatively small and new firm which had struggled with losses for months.

IMPACT

Share price movements since Sunday suggest some investors are worried by the CMA’s policy. Small-capital and insurance stocks, which are often favoured by speculators, have dropped; Al Ahlia Cooperative Insurance Coplunged its 10 percent limit on Monday and by the same amount on Tuesday. The sector’s index lost 12.3 percent in the last three days.

The overall stock market has not suffered much, however, suggesting other investors see benefits in the reforms. The main market index fell 1 percent between Sunday and Wednesday.

Alalaiwat said that in the long term, retail investors would be forced to become more intelligent in their stock picks, rather than simply chasing shares that appeared to have entered an uptrend.

“These new regulations will calm down the market and people will have to start picking stocks with fundamental value.”



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