In its endeavor to raise the level of investment and legal awareness among current and future potential investors in the capital market, the Capital Market Authority (CMA) published a new handbook to warn investors about deceptive practices in the market.
The handbook – which is the 16th published by the Saudi regulatory body – illustrates the many types of deceptive acts that could be practiced in the market which violate the Capital Market Law and its Implementing Regulations. Among its many Implementing Regulations, CMA published the “Market Conduct Regulations” in 20 articles which have been effective since their publication. The regulation defines, among other things, several terms such as “manipulative acts”, “deceptive acts” and “insider trading”. It also explains the conduct of Authorized Persons (AP). Whereas the regulations define each term and state how it violates the Capital Market Law. The handbook, on the other hand, helps investors by presenting examples of each type of deceptive or manipulative act as a reference.
Influencing the closing price of a stock is one of the deceptive practices which violates CMA’s implementing regulations and is mentioned in the handbook. An example of such practice would be of an investor buying or selling shares moments before the market’s closure to influence the rise or fall of the stock price. Accordingly the closing share price would be factitious and would reflect negatively on the value of investment portfolios. It could also lead investors to take decisions based on incorrect information and might affect the stock’s price on the following day of trading.
As for the practice of manipulation presented in the form of artificially inflating a stock price and then selling it, the handbook illustrates the following case: An investor enters an order or several orders to influence its price to rise. The stock price could then rise to a factitious level and create the illusion that there is an increasing demand for the stock which leads investors to make wrong investment decisions. The manipulative person benefits by selling his shares or another investor’s shares, benefiting from the rise in the price of the stock.
Other examples are given in the handbook to illustrate how violations of the Capital Market Law and its Implementing Regulations take place in other areas including publishing rumors or untrue statements, practicing brokerage without a license, and announcing securities without obtaining a license.
