All eyes are on the Saudi stock market following Mazen Al-Sudairi’s appointment as chairman of the Capital Market Authority. Al-Sudairi was appointed in August, succeeding Mohammed El-Kuwaiz, who led the Authority for nearly a decade. In his first interview, he announced a reform plan to be implemented over 90 days. This article explains its key points and why they matter to investors.
Why reform now?
Al-Sudairi identified three challenges: the large number of declining stocks, the quality of some initial public offerings, and the low participation of retail investors. His goal, according to his remarks, is for the market to truly reflect the Saudi economy and become a place for saving and long-term investment.
Key areas
1. Retail investors’ share of IPOs. Al-Sudairi said the 10% figure is not fixed and that retail investors’ share should reach 30%, with the possibility of a different allocation for large offerings. This would give individual investors a better chance of receiving shares in an IPO.
2. Changing how IPO success is measured. Al-Sudairi believes that the number of times an IPO is oversubscribed is not enough to determine its success; what matters more is the stock’s performance after listing, since many IPO orders do not reflect genuine investment demand. This explains a familiar phenomenon: an offering is oversubscribed hundreds of times, then the stock falls after listing.
3. Regulating short selling and algorithmic trading. The plan includes tighter oversight of algorithmic trading and new controls on short selling.
4. Governance. Asked whether the Authority would set a cap on board members’ compensation, Al-Sudairi replied that setting such standards is not within the Authority’s remit.
5. Broadening the investor base. The Authority aims to increase participation by individuals, institutions, and foreign investors.
Draft rules for new offerings
In parallel, the Authority published draft amendments to the offering rules. Public consultation opened on September 22 and will continue until October 22. If approved, the amendments will take effect on November 2. The main changes are:
Greater responsibility for underwriters: The underwriting agreement must be signed before book-building begins, and the bank must purchase any shares that investors do not subscribe to, up to the full offering amount.
Liquidity verification: The financial adviser must ensure that orders from major investors are backed by genuinely available liquidity.
Public financial forecasts: Companies will be required to disclose forecasts covering at least one year.
Another perspective
Some bankers and lawyers believe that tighter offering requirements could slow the pace of listings in the near term. They also warn of the risks of increasing retail allocations when demand is weak. The impact of these measures will depend on the final form of the rules and on share performance after listing.
Bottom line
The Authority is trying to strike a difficult balance: protecting investors and improving the quality of offerings without stifling listing activity. Success will be reflected in share performance after listing and in the details of the final decisions, which have yet to be announced. Individual investors would be wise to follow developments over the coming weeks and not rely solely on oversubscription levels when evaluating an IPO.
This article is for informational purposes only and does not constitute investment advice.