Mohammed Al Jadaan, Former Chairman, Capital Market Authority (CMA): Interview

Interview: Mohammed Al Jadaan

What additional regulatory changes have been made to attract more qualified foreign investors?

MOHAMMED AL JADAAN: As part of its strategic objective to develop capital markets and expand the institutional investor base, the CMA board agreed to amend the “Rules for Qualified Foreign Financial Institutions Investment in Listed Shares” by reducing the minimum requirements for assets under management from $5m to $1m. We also added new categories of qualified foreign financial institutions to include government funds, university endowments and other entities approved by the CMA. In addition, qualified foreign investors are allowed to own larger stakes in listed companies, provided that they do not reach 10% of the shares of any issuer for each investor, and that they follow the restriction of not allowing foreign investors in aggregate to own more than 49% of the shares of any issuer whose shares are listed.

These initiatives aim to make the capital markets environment more stable and supportive of the national economy, by raising the level of transparency and corporate governance, and expanding the participation base as well as promoting investment literacy.

From a regulatory perspective, what will have to take place to prepare for large initial public offerings such as that of Saudi Aramco?

AL JADAAN: Aramco and its advisors are coordinating with the CMA and several other related government agencies to ensure its compliance with all relevant statutory requirements. The CMA has carried out several measures and initiatives aimed at developing the capital markets and strengthening its capabilities in line with other leading global markets. For example, the CMA has approved Tadawul’s request to amend the settlement system from T+0 to T+2, and allow securities lending and covered short-selling.

There are other initiatives related to the custody business and account-opening processes that are being carried out to ensure that the whole market infrastructure and all processes are ready. These initiatives are aimed at ensuring that the market will be ready to receive the expected large demand from local and international investors when large assets such as Aramco’s are offered to the public.

How are changes in IT and connectivity affecting the market, and what is the CMA doing to ensure that regulations keep pace with these changes?

AL JADAAN: The CMA attaches paramount importance to the development of IT. From this perspective, our 2015-19 strategy includes an objective to facilitate the electronic transformation of the CMA’s business and services. This reaffirms our belief that harmonisation between IT and business is essential to financial markets, government institutions and individuals, especially in the era of rapid growth in information and data. IT is a vital function and a critical mission for the CMA in implementing the latest and best practices, and in managing a large number of internal processes, data and products of departments, as well as protecting the CMA’s information.

Accelerating changes in the world today have reflected the importance of IT and the transition to e-government services, through the offering of services and utilisation of the data available at other government agencies. This will also facilitate the provision of better information to regulate the capital markets and its participants. In addition, investment in the infrastructure of IT will be supported to increase performance, flexibility and the security level required to support the CMA’s daily operations.

On the market front, as a board member of the International Organisation of Securities Commissions, the CMA follows developments in the use of technology by market participants. As such, we have conducted studies relating to financial technology and algorithmic trading with an eye towards policy.