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Busy month for region’s regulators

Suspensions on UAE stock markets and allegations of manipulation on the Kuwait Stock Exchange may sound like negative news, but they are more likely to reflect a strengthening regulatory environment.

February has been an eventful month for the region's regulators.
The Kuwait Stock Exchange (KSE) banned 52 individuals and 10 firms from voting in general assembly meetings of 25 companies for two electoral terms, after it found disclosure violations by the companies. The KSE is also investigating allegations against 16 other firms. In December, it barred shareholders in 13 listed firms from selling shares on the bourse for breaking disclosure rules, although they were still permitted to trade over the counter.

Shuaa Capital was accused by Trends, a financial magazine, of attempting to manipulate the share price of Al Ahlia Investment Company, which is listed on the Kuwait Stock Exchange. The magazine claimed that Shuaa had told the market it had paid 480 Kuwaiti fils each for 53.75 million shares it bought in the company in late 2005, when it had actually paid 410 fils. It is alleged that Shuaa bought the shares in a block deal on the open market at the market price and was then repaid the difference in a behind-the-scenes deal - something that it did not declare.

Shuaa is taking legal action against the magazine, and issued a statement saying: "The KSE has previously reviewed the manner in which the block trade in question was executed. The KSE took no action and later approved the accounts of Al Ahlia for financial year 2005 without any reservation."

At time of going to press, it was still unclear whether the KSE, the Emirates Securities and Commodities Authority (ESCA), which regulates the UAE stock exchanges, and the Dubai Financial Services Authority, which regulates companies based in the Dubai International Financial Centre, were investigating the transaction, or what the potential penalties might be if Shuaa were to be found guilty of any wrongdoing.

Meanwhile, ESCA imposed fines on four companies on UAE exchanges for failing to meet a February 5 disclosure deadline for fourth-quarter earnings.

In other news, the chairman of the state-owned National Company for Cooperative Insurance (NCCI) in Saudi Arabia warned that dozens of unlicensed insurance firms were in operation in the Kingdom and had embezzled hundreds of millions of riyals.

Of course, underhand operations are not restricted to emerging economies. Federal investigators are currently examining data from 10 major Wall Street banks to determine whether hedge funds are being routinely tipped off about buy and sell orders placed by mutual funds.

However, it seems that in general this situation is positive: the market regulators are taking action at the first sign of anything unusual.

Trading in shares of Emaar was temporarily halted on February 6 after a rumour that the property developer was due to buy a 10% stake in Arab Bank caused the share price to shoot up. Emaar later denied the rumour and trading continued.

In the interests of transparency, the UAE Ministry of Economy last month released new rules regarding the regulation of auditors. Under the guidelines, auditors must accept liability for any damages that arise from performing the job improperly.

Institutions are also working more closely with foreign experts to ensure world class standards. Dubai International Financial Exchange (DIFX) Academy signed an agreement on February 13 to develop a new exam for the financial services industry, in cooperation with the UK Securities & Investment Institute.

It may sound like a month of horror stories from the markets, but the real concern would be if these incidents were not being reported and investigated. These reports are proof that regulators are actively trying to ensure the transparency of the financial industry - exactly what is needed to boost consumer confidence during a low point in the markets.

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