RIYADH — Saudi Arabia’s Capital Market Authority (CMA) is preparing a package of market reforms to be introduced within 90 days, with plans including a larger retail investor share in initial public offerings, tighter oversight of algorithmic trading and new controls on short selling.
In his first media interview since being appointed chairman of the CMA board, Mazen Al-Sudairi outlined the regulator’s priorities for improving market efficiency, strengthening investor confidence and ensuring greater fairness in the Saudi stock market.
Speaking to Al Arabiya Business, Al-Sudairi said the Saudi leadership had made market fairness and efficiency a central priority.
“When I was appointed chairman of the authority, the direction from the Custodian of the Two Holy Mosques and the Crown Prince was clear: to create fairness in the market and enhance its efficiency,” he said.
Al-Sudairi said the CMA had identified several areas requiring reform, including the high number of declining stocks, the quality of some IPOs and weaker participation by retail investors.
The authority has prepared an implementation plan aimed at introducing reforms within no more than 90 days to address structural challenges affecting the market, he said.
CMA reviews IPO framework
Al-Sudairi said the IPO market was among the areas requiring significant development, questioning whether high subscription coverage necessarily reflected genuine investment demand.
He said high oversubscription levels should not, by themselves, be considered a measure of an IPO’s success.
The CMA is working to redefine responsibilities among parties involved in listings and offerings, including advisers, subscription managers and issuing companies.
Al-Sudairi said the success of an IPO should ultimately be assessed by the stock’s performance after listing and whether the offering creates value for investors, rather than simply by the volume of orders or subscription coverage.
He said the CMA had investigated several previous offerings but stressed that the regulator did not want to create fear in the market.
“Our goal is for the authority to be a source of confidence, not intimidation. Its primary role is not that of a policeman, but of a regulator that balances the interests of all parties,” he said.
The CMA could tighten or ease certain regulatory requirements depending on the nature of individual offerings to achieve the appropriate balance for the market and investors, he added.
Retail investors could receive 30% of IPOs
Al-Sudairi said the CMA was moving toward increasing the proportion of IPO shares allocated to retail investors.
“Fundamentally, we believe the retail share in offerings should increase to 30%,” he said.
Increasing retail participation is part of efforts to deepen the market and diversify its investor base, he added.
Algorithmic trading under scrutiny
On algorithmic trading, Al-Sudairi said the CMA was seeking to balance technological development with market fairness.
A significant portion of algorithmic trading in the Saudi market is conducted by foreign financial institutions, he said, adding that the authority continuously monitors such activity to ensure compliance with regulations.
The objective of regulating algorithmic trading is to maintain fairness among investors and prevent practices that could undermine the integrity of trading, he added.
New short-selling controls under consideration
Al-Sudairi described short selling as an important and internationally recognized financial tool but said clear controls were necessary to ensure it was used appropriately.
“Short selling is beneficial to the market provided it is not used negatively,” he said.
He said there were indications that some short-selling practices could currently be having a negative impact.
The CMA has already begun regulating aspects of securities lending and is working to complete the regulatory framework for the activity, while considering additional short-selling controls aimed at balancing market efficiency with investor protection.
Foreign ownership limits under review
Al-Sudairi said the CMA was also discussing foreign investor ownership limits with government agencies and sector regulators.
Any future changes would form part of a broader approach aimed at increasing the attractiveness of the Saudi market while preserving its stability, he said.
CMA seeks stronger corporate governance
On the effectiveness of boards at listed companies, Al-Sudairi said the CMA was focusing on empowering shareholders and strengthening the role of general assemblies.
Listed companies have been required to hold two meetings annually to discuss financial results with investors, a measure intended to improve transparency and communication.
Al-Sudairi said stronger institutional oversight should begin by empowering shareholders and increasing access to information.
Asked whether the CMA could impose limits on board members’ remuneration, he said setting such standards did not fall within the authority’s mandate.
“It is not the authority’s role to set standards for board members’ remuneration,” he said.
Investor freedom and domestic liquidity
Addressing the movement of Saudi liquidity into international markets, Al-Sudairi said the CMA did not seek to dictate where investors should place their money.
Investors should be free to choose the markets in which they invest, he said, adding that regulations governing overseas trading were similar to those applied domestically and were intended to protect investors and align regulatory environments.
He said retaining liquidity in the Saudi market should be achieved by increasing its competitiveness and strengthening confidence rather than imposing restrictions on investors.
“Everything that enhances confidence in the Saudi market, we will work on,” Al-Sudairi said.
Making the market reflect the Saudi economy
Looking ahead, Al-Sudairi said the CMA aims to expand participation in the market among retail and institutional investors as well as foreign investors.
“Our goal is for the stock market to be a true representation of the Saudi economy,” he said.
He also emphasized the importance of encouraging a culture of saving and long-term investment.
“We want the stock market to become a place for citizens to save, in addition to being an investment and development platform that contributes to supporting the national economy,” he said.
Source: Saudi Gazette