Smarter regulation: Plans are under way to enhance the regulatory framework

Jordan has a triumvirate of institutions responsible for running and overseeing its capital markets, and is known regionally for the stability of its institutions, consistency of its policies and its ability to implement sound regulatory processes. The Amman Stock Exchange (ASE) runs the market and is in charge of ensuring an efficient and secure trading environment, and is supported by the Security Depository Centre (SDC), responsible for overseeing settlements and keeping ownership records. The Jordan Securities Commission, meanwhile, provides regulation and is charged with monitoring and developing the market.

FORWARD PLANNING: According to Nader Azar, deputy CEO of the ASE, the objective for 2012 is to use the relative lull in market activity to enhance the performance of capital market institutions and make regulatory revisions in preparation for when activity picks up. One reform in the pipeline is revising the securities law to encourage institutional investment and ease creation of investment funds. Revisions to the first and second markets would likely bring in more rigorous requirements to encourage a higher standard for companies listing, while a third market would be created with lower requirements. This move would make it easier for investors to differentiate listing companies that have strong fundamentals from newer firms with no track record that are effectively listing to raise capital. Companies would be able to move between the markets depending on changing conditions and performance.

SMART SURVEILLANCE: Samir Jaradat, CEO of the SDC, outlined for OBG the institution’s plans to enhance the regulatory environment for the kingdom’s capital markets. The first phase will require adjusting regulations to adapt with the dynamic nature of the equity market and its needs, providing investment and risk management tools to encourage business growth, while ensuring compliance and enforcing correction on violators. Second, a targeted approach will be taken to surveillance in order to prevent the addition of unnecessary, burdensome regulations. Third, technical infrastructure that supports capital market institutions will be kept up-to-date, and finally, emphasis will remain on transparency and disclosure.

In particular, the regulatory institutions will respond to the growing demand for new products to suit the tastes of investors. Such tools will give investors more options to manage risk, according to Jaradat. For example, providing unit investment trusts or exchange-traded funds could help cultivate small individual investors into one pool, encouraging more professional and institutional behaviour on the exchange, and providing a low-cost and tax-efficient investment option. Other planned developments include activating the bond market and introducing government sukuks (Islamic bonds). Jaradat was also keen to stress that despite these planned developments, the fundamentals of a company’s performance, along with supply and demand, will be the primary elements that will determine prices.

RECENT REVISIONS: While a number of significant regulatory adjustments are still in the planning stages, 2011 saw several smaller revisions designed to enhance the efficiency and transparency of the market. Amended trading hours, providing a pre-opening session between 10.00am and 10.30am, have given extra time for traders to conduct basic procedural due-diligence, such as contacting listed companies to disclose required information and for regulators to check procedures regarding public shareholding companies.

Another change was to the Listing Securities Directives, which now prevents the suspension of shares in companies that decide to lower capital before approval is given by the minister of trade and industry. By leaving companies’ shares available to trade, this gives investors time to obtain information regarding a company’s decision so that they can make a better-informed investment decision before capital reduction takes place. In addition, companies that are ordered to begin compulsory liquidation and companies whose general assemblies decide to start voluntary liquidation are to be automatically delisted.