CMA currently studies 79 IPO files, closely monitors investor compensation: ElKuwaiz

Mohammed ElKuwaiz Chairman of the Capital Market Authority (CMA)

The Capital Market Authority (CMA) is studying 79 initial public offering (IPO) applications on the Saudi Exchange (Tadawul) or Nomu-Parallel Market, Chairman Mohammed ElKuwaiz told Argaam on the sidelines of the Euromoney Saudi Arabia conference 2022.  

The CMA witnessed an unprecedented momentum in capital market listings, which reached 21 in 2021 ahead of rising to 25 in the first half of 2022. 

ElKuwaiz also underlined the various sizes and levels of maturity of companies and financial advisors. The market regulator started with rejecting some applications by companies, which it described as “not ready”, however, these companies can apply again later, he affirmed.  

As IPO applications are on the rise, the CMA set priorities to address these requests, mainly the firms seeking to raise capital for expansions. In the second place come the shareholders looking for divestments, then the companies seeking direct listing.  

The market regulator recently observed large expansions in some market sectors, such as pharmacies, which were hindered by regulatory obstacles on ownership restrictions. The CMA aims to attract players in the security and education sectors, especially higher education, which suffers listing restrictions, through revising or amending these restrictions to realize the regulator’s objectives and help the sector’s firms expand and get the required finance.  

Elsewhere, ElKuwaiz added that the CMA expects dual listing to see a strong turnout, despite the impact of the regional economic data and the COVID-19 pandemic, which, in turn, dampened investors’ appetite for dual listing.  

Dual listing was also affected by the turnout of Saudi firms to raise funds and list their shares on the Saudi market, as well as the coverage of IPOs, he said, noting that market is open for all local and international issuers.  

ElKuwaiz expected the Saudi market to see the first dual listing by the end of this year, as foreign companies started anew to show interest in the capital market. 

On the other hand, he affirmed that the market regulator is closely monitoring the investor compensation processes, pointing to regulatory challenges mainly creating a regulatory framework through class actions.  

Courts consider these actions to legally evaluate the required compensation. This led to an increase in the number of compensation claims, which signals that the CMA is on the right track in terms of compensating shareholders, he concluded. 

ElKuwaiz also said that Saudi Arabia ranks among the world’s top countries in terms of governance, as recognized by the World Economic Forum (WEF) and World Bank’s governance indicators. Saudi Arabia takes the fifth place by governance and the first among the G20 states.

These ranks imply the quality of governance and disclosure level, as well as the board members and the quality of organizing relations. The Kingdom takes the 15th spot globally in most board quality assessments.

ElKuwaiz added that the developed reporting system, announced earlier, allows market participants to file anonymous complaints to the CMA. This system is increasingly monitored for all violators of the market regulations and disclosure requirements.

The capital market was the first to organize class actions, with many verdicts issued in the last two years. Accordingly, compensation amounts ruled by courts doubled in the capital market, ElKuwaiz noted, expecting this trend to continue increasing.

On futures, the CMA Chairman said the products is still nascent. Futures contracts witnessed cautious and lackluster trading by investors, but trading improved after Tadawul’s launch of the second wave of futures contracts.

Futures trading has been growing in the last years, as volumes double annually compared to a year earlier, ElKuwaiz affirmed, predicting an increase following the rollout of other derivatives products, mainly the options.