Saudi CMA amends Listing Rules

On 22 January 2012, the Saudi Arabian Capital Market Authority ("CMA") Board of Commissioners issued a resolution amending the Listing Rules and Glossary of Defined Terms. The decision follows a two month public consultation period which ended in July 2011 and forms part of the CMA's efforts to: (i) further enhance the regulatory framework relating to the Saudi Arabian Capital Markets (including the public offerings of securities, admission to listing, surveillance, dealing and disclosure); and (ii) reflect the CMA's previous experience in implementing the Listing Rules. The Listing Rules introduce a number of changes, discussed below.

Cross Listings

Of significance and interest to foreign companies is the introduction of Article 14 which now permits cross-listing on the Tadawul exchange. The CMA has an absolute discretion to approve or reject an application from a foreign issuer, but must be satisfied in its opinion that the listing rules applicable in the foreign issuer's jurisdiction of listing are at least equivalent to the CMA's Listing Rules. The introduction of Article 14 has been looked upon favourably by market participants and observers who consider it a means to enable the Tadawul to evolve into a regional hub and to encourage foreign companies to tap the capital and liquidity that exists in Saudi Arabia.

However, Saudi law does not yet permit foreigners (with the exception of citizens from Gulf Cooperation Council ("GCC") countries) to directly own or acquire shares in companies listed on the Tadawul, which, unless relaxed, is likely to preclude non-GCC companies from seeking cross-listings.

Contractually based securities, warrants and convertible debt instruments

In addition to shares and debt instruments, the CMA has broadened the application of the Listing Rules to permit the admission to listing of contractually based securities, warrants and convertible debt instruments.

New provisions concerning the registration and admission to listing of debt instruments have also been introduced.

Appointment of an independent financial  adviser and  an independent legal adviser

The Listing Rules now  expressly provide that in the following circumstances an independent financial adviser and an independent legal adviser must be appointed:

• where an application for registration and admission to listing requires the production of a prospectus;
• where an issuer undertakes a voluntary cancellation of listing; and
• where required by the CMA to advise the issuer on the application of the Listing Rules, the Capital Market Law or its Implementing Regulations.

The financial adviser must be authorised by the CMA and must be independent of the issuer. The independent legal adviser must be licensed to practise law in Saudi Arabia and must also be independent of both the issuer and the issuer's financial adviser. 

The new Listing Rules require that as part of the admission process both the financial adviser and legal adviser submit letters to the CMA pursuant to which they must confirm specific issues.  Amongst other things, the financial adviser must confirm that:

• to the best of its knowledge, and through conducting due diligence and making enquiries of the issuer and its advisers, the issuer has satisfied all conditions required for registration and admission to listing of its securities and has satisfied all other matters required by the CMA; and
• based on due enquiry and professional experience, the issuer has established adequate procedures, controls and systems to enable it to comply with the requirements of the Listing Rules, Capital Market Law and Implementing Regulations.

Similarly, the legal adviser is required to confirm amongst other things, that it is not aware of any material matter of non-compliance by the issuer with the requirements of the Capital Market Law or with the conditions imposed by the Listing Rules in respect of the registration and admission to listing of the issuer's securities, including prospectus content requirements. 

Other changes

Other changes to the Listing Rules include the following:

• underwriters must now comply with the CMA's prudential rules, including those relating to minimum capital. This represents a departure from the previous rules which permitted an underwriter to arrange for financing to meet their underwriting commitments or to enter into sub-underwriting agreements with persons who have sufficient minimum net capital to meet the underwriting commitment;
• more detailed prospectus requirements, including the requirement to submit additional documents such as a financial due diligence report, a legal due diligence report, a presentation detailing the structure of the issuer and its subsidiaries, and a copy of a market study detailing industry information and market trends produced for inclusion in the prospectus;
• enhanced continuing disclosure requirements, including a requirement that disclosures made by an issuer to the public and the CMA must be clear, fair and not misleading;
• new employee share scheme provisions, including a requirement for schemes to be approved by shareholders and capped at 15 per cent of the issuer's equity;
• new provisions relating to capital increases and reductions including provisions relating to rights issues and prospectus disclosure requirements where equity is being issued to fund an acquisition;
• a prohibition on share dealings by directors and senior executives during specified periods being extended to 30 days prior to results announcements.

Recent developments

Registrar of Companies delegates authority to DFSA:  On 15 February 2012 the DIFC Registrar of Companies delegated certain powers to the Dubai Financial Services Authority (the "DFSA").  The delegated powers include the power to appoint inspectors to investigate the affairs of companies and partnerships, and to pursue enforcement remedies available to the Registrar under the Companies Law, DIFC Law No 2 of 2009, the Limited Partnership Law, DIFC Law No 4 of 2006, the Limited Liability Partnership Law, DIFC Law No 5 of 2004, the Insolvency Law, DIFC Law No 3 of 2009 and the General Partnership Law, DIFC Law No 11 of 2004 and their associated regulations.

Amendments to DIFC Data Protection Law: The DIFC Authority ("DIFCA") has recently ended a consultation period in relation to proposed amendments to the Data Protection Law, DIFC Law No.1 of 2007 (the "Law") and the Data Protection Regulations (the "Regulations").  The proposed changes include introducing new provisions:

• imposing a new obligation on the Data Controller to notify the Data Protection Commissioner of any changes to its Personal Data Processing operations;
• permitting the Commissioner to delegate (if required) certain functions and powers to officers and employees of the DIFCA;
• authorising the Commissioner to issue a written Notice of Administrative Fine to a Data Controller in breach of the Law or Regulations, setting out the contravention and the fine(s) imposed (in accordance with a Schedule of Fines located in Schedule 2 of the Law).

DFSA assumes responsibility for all Anti-Money Laundering/Combating the Financing of Terrorism ("AML/CFT") supervision and enforcement in the DIFC: On 15 January 2012 the Dubai Financial Services Authority (“DFSA”) announced that His Highness Sheikh Mohammed Bin Rashid Al Maktoum, had enacted amendments to the Dubai Regulatory Law No 1 of 2004. Pursuant to these amendments the DFSA has now assumed responsibility for, and becomes the single AML/CFT regulator of all AML/CFT supervision and enforcement in the DIFC. Designated Non-Financial Businesses and Professions ("DNFBPs") were previously supervised by the Dubai International Financial Centre Authority (“DIFCA”) in respect of AML/CFT compliance. In addition to the amendments to the Regulatory Law 2004 the DFSA has introduced a new DFSA rulebook “Designated Non-Financial Businesses and Professions Module” (“DNF”), which provides rules and guidance to firms falling under the DFSA’s supervision.

Central Bank of Bahrain ("CBB") ends consultation period on new Collective Investment Undertakings ("CIU") Module: On 5 January 2012 the CBB ended its consultation period in relation to the introduction of a new CIU Module. The draft Module restructures the existing module and introduces new chapters. The CBB has sought to address key areas such as: (i) corporate governance; and (ii) the roles and responsibilities of each "Relevant Person" under the CIU. In addition, the CBB has introduced new rules aimed at enhancing the establishment of new products such as Bahrain Real Estate Investment Trusts ("B-Trusts") and Private Investment Undertakings ("PIUs").