The Council of Ministers today passed the Saudi Arabian Capital Markets Law, which sets out the framework for the capital market as follows:
1. the Saudi Arabian Securities and Exchange Commission (SASEC) shall be established with the objectives of protecting investor interests, ensuring orderly and equitable dealings in the business of securities, and promoting and developing the capital market;
2. the Commission shall be vested with the powers to license non-bank financial intermediaries, and to authorize the offering of securities to the public;
3. the Saudi Arabian Stock Exchange (SASE) shall be established, and shall incorporate the national securities depository center.
The enactment of the Capital Markets Law will facilitate the licensing of non-bank financial intermediaries and the issuance of an increased number and variety of securities; and, based on international best practice, will result in the restructuring of the capital markets in Saudi Arabia, thereby promoting greater efficiency and transparency. The Law is integral to the government's stated aim of privatization, leading to increased participation by citizens in the capital market and thus the nation's economy.
SASEC, as the primary regulatory body, governed by five commissioners to be appointed by royal decree, will develop and regulate a Saudi Arabian capital market that is dynamic, fair, transparent and efficient, and that will contribute to the nation's economic development. This efficient and virile capital market is pivotal to meeting the nation's economic and developmental aspirations. In order to deepen and broaden the market, and achieve the objectives of investor protection and capital market development, SASEC will:
a) regulate investments and securities business in Saudi Arabia;
b) register and regulate the Saudi Arabian Securities Exchange (SASE), including the national securities depository;
c) register securities to be offered for subscription or sale to the public;
d) organize training programs and promote high ethical standards;
e) register and regulate non-bank financial intermediaries including SASE members and their employees, and others involved in the organization and operation of the capital market such as custodians of securities and credit rating agencies;
f) protect the integrity of the securities market against abuses arising from the practice of insider trading;
g) review, approve and regulate mergers, acquisitions and all forms of business combinations;
h) provide investor education and promote investor awareness;
i) prevent fraudulent and unfair trade practice relating to the securities industry;
j) perform such other functions and exercise such other powers not inconsistent with the law as necessary, or expedient for giving full effect to the provisions of the law.
SASE, as the stock exchange incorporating the national securities depository, will be a private sector company, the board of which will initially consist of nine members, three from the government, representing the Saudi Arabian Monetary Agency (SAMA) and the ministries of Finance and Commerce; and six from SASE shareholders. It will be the only stock exchange in the Kingdom and will perform the following functions:
a) ensure fairness and transparency of the markets operated by SASE;
b) admit members (both brokering and clearing);
c) list and explain the requirements and conditions for the listing of securities;
d) promote high ethical standards among members, their employees and market participants;
e) promote high standards of corporate governance;
f) ensure timely and accurate dissemination of market information;
g) establish and operate a nationwide system for securities trading, settlement clearing, and the depository, in order to protect investors and maintain fair and orderly markets;
h) provide modern communication and data processing facilities in order to foster efficiency, enhance competition, and increase the information available to market participants.
The stock market in Saudi Arabia has a long history, since shares were first offered to the public in 1954. The market remained informal until the mid-1980s when a committee was formed of the Ministers of Finance and Commerce and the Governor of the Saudi Arabian Monetary Agency (SAMA), with overall responsibility for its regulation and development. In the early 1990s, the Kingdom introduced a fully electronic market, comprising trading, clearing, and the depository. A new infrastructure for the market - known as 'tadawul' - was implemented in 2001. Since then, the market has grown significantly. By June 15, 2003, market capitalization stood at over SR 477 billion (U.S.$127 billion) confirming Saudi Arabia as the largest market in the region and one of the largest emerging markets in the world, although the number of companies listed remains comparatively low at 65. Trading in shares on these companies is limited to Saudi nationals and citizens of other Gulf Cooperation Council (GCC) member states. Non-GCC nationals participate in the market by investment in open-end mutual funds offered by Saudi banks.