The Capital Market Authority (CMA) is working on gradually expanding the institutional investor base in IPOs (for issuances offered above nominal value) as stated in the CMA's five year strategic plan (2015 – 2019).
Since developing the Saudi capital market is one of the main functions stated by the Capital Market Law, CMA has sought to create an investment-conducive environment characterized with fairness, efficiency, and transparency where multiple investment channels exist to serve all types of investors. Such an environment would be available by reinforcing institutional investment and increasing its percentage in the market which would lead to reinforcing the market efficiency and lowering the volatility rate.
Moreover, increased institutional investor’s ownership of strategic shareholdings in invested companies promotes governance practices in those companies and increases their transparency. This is difficult to achieve under the dominance of individual investors. To achieve this goal, CMA anticipates pipelining most IPOs to institutional investors by the end of the strategic plan, provided that the stake of publicly offered mutual funds is 90 percent of the total portion dedicated to institutional investor categories. The share of funds is increased due to the fact that the fund managers are more professional when it comes to prospectus related risks.
CMA also sees that investing through mutual funds would contribute in providing a variety of investment product and would increase the institutional behavior and professional practices in the market, which will reflect positively on the investors and market in general.
Individual investors’ participation in IPOs would be available to the public through the public mutual funds as they can subscribe and benefit from the IPOs through them. Those funds will work to protect the individual investor’s savings and pipeline it to the appropriate investment in regard to its investment restrictions and risk limits.
CMA clarifies that the individuals’ dominance on the market transactions leads to market value instability for many listed companies especially the small ones. In addition, increased rumors, as well as illegal and misleading practices negatively affect the market’s credibility. Losses by many individual investors are also due to their misunderstanding of the market mechanisms and risks. CMA hopes that the increase in percentage of institutional investment through increasing the portion of mutual funds participation in IPOs would address these issues and eliminate them.
CMA has specified the rights of unitholders in(The Investment Funds Regulations). Such rights include receiving a new updated copy of the terms and conditions of the fund in Arabic without charge. In addition, the fund manager must send a detailed report to unitholders every three months that includes the net asset value of total fund units, the number of and net value of fund units owned by the unitholder, and a record of transactions specific to the unitholder including payment of dividends subsequent to the last report provided to the unitholders. Audited financial statement must also be provided to unitholders without charge.
Investors’ rights in investment funds include notifying them of any material changes to the terms and conditions by sending a summary of those changes at least sixty (60) calendar days in advance of the effective date of the changes.
