Issues of Transparency and Disclosure in the Saudi

The stock market crash in Saudi Arabia at the beginning of 2006 not only highlighted the issues of transparency and disclosure but also questioned the ability of the Capital Market Authority to regulate and supervise the market. The Capital Market Authority has been blamed (CMA) for being responsible for a transparency problem; however, after comparing the current listing and disclosure rules with the old ones and with the similar rules of the London Stock Exchange and their enforcement mechanism, the disclosure rules of the CMA proved to be efficient and in compliance with international standards, and the enforcement mechanism also proved to be reasonably effective. This article argues that the problem in the Saudi stock market is a problem of investors’ knowledge and the way of attaining and using information. The author stresses the importance of investor education and stricter disciplinary actions against market manipulators who are taking advantage of small investors’ lack of experience. The author proposes some reforms in the legislation, such as stricter disciplinary actions against market abuse, tighter supervision, and some changes in the disclosure rules. He concludes that regulating foreign institutional investors will be the real challenge for Saudi legislators in the foreseeable future.