CMA obliges financial institutions not to accept fake subscription applications: Sources

Logo of The Capital Market Authority

The Capital Market Authority (CMA) sent a circular to the financial institutions ordering financial advisors and bookrunners only to accept subscription applications after verification, sources told Argaam. 

Applicants are required to cover the application either in cash or by making the necessary arrangements. 

CMA ordered the financial advisors, upon the expiry of the book-building process, to use the term total size of applications” instead of “raised or collected funds”, in announcements to the public about offering coverage ratios, the sources added. 

The step comes in light of the unrealistic high levels of offering coverage, as the CMA noticed some practices during participation in the book-building processes in initial public offerings (IPOs) and private placements.  

The CMA found out that some institutional bookrunners accept subscription applications of a certain category of legal persons without taking into account their financial solvency. 

The authority affirmed the importance of the verification of applications to participate in the book-building process.  

The CMA further stressed that all financial institutions should abide by the Capital Market Law and its executive regulations, the sources added, referring to Article 49 of the Law about violations, with regard to creating a misleading impression about the market, prices, or the value of any security. 

The CMA is flexible with respect to raising the shares of individuals in subscriptions, as the law does not provide for the allocation of 10% of shares as a minimum for individuals. Companies can consult their financial advisors and bookrunners to raise individual ratio in each subscription, sources pointed out. 

The CMA recently agreed to allocate 30% of the offer shares for individuals in three IPOs, including Saudi Tadawul Group Holding Co., Elm Co., and Al Masane Al Kobra Mining Co. (AMAK). 

The retail offering of Saudi Tadawul Group was 443% oversubscribed, while those of Elm and AMAK were oversubscribed by 1311.6% and 1060%, respectively.