An Analysis of Capital Market Regulation in Saudi Arabia

Only recently, in 2003, did the Saudi Arabian legislator issue a capital market law and create a regulator vested with its enforcement. This recently-created regulator, the Capital Market Authority (“CMA”), is still in the process of building the regulatory framework governing capital markets. Some regulatory instruments were actually issued as recently as December 2012 and other instruments are still under preparation. This thesis provides an overview of the legal framework governing Saudi Arabian capital markets and evaluates its adequacy in the organization of capital market transactions and the protection of market participants. This thesis delivers a number of proposals for legal and institutional reforms. For instance, this thesis recommends that a greater role be given to international non-governmental Islamic organizations for the formulation and attempted harmonization of Sharia standards applicable to capital market transactions. This thesis contends that the CMA should interact more closely with the regulated sector and allow greater transparency regarding the rationale and process of development of legal rules. This thesis also contends that the CMA should cooperate more closely with other regulators on the national and international planes, so to control systemic risks more effectively and achieve greater market efficiency. In order to minimize systemic risks, this thesis suggests the diversification of sectors listed on the stock exchange. Finally, this thesis describes the regulatory framework as a possibly effective socio-economic policy tool, which can be utilized in parallel, along other available policy tools. This thesis contends that the CMA should play a larger role in the pursuit of Saudi Arabia's socio economic priorities and should prioritize securities offers and investments with greater anticipated socio-economic yields.