Kuwait's National Assembly unanimously passed on January 20th, 2010 a groundbreaking bill that will regulate the country's stock market for the first time. The Capital Markets Bill (the "Bill"), once passed in a second reading in the weeks to come,will provide for greater transparency of security activities within Kuwait.

The Bill revolutionises the previously unregulated Kuwaiti securities market by implementing regulations and licensing requirements for entities such as stock exchanges, clearing companies, and investment funds to make such activities equitable and competitive with foreign securities markets. The Bill also states that stock exchanges (i.e., the Kuwait Stock Exchange ("KSE") and any other future stock exchanges) shall be converted to shareholding companies of which the government must own at least 60%. The remaining 40% are allotted for sale to Kuwaiti citizens in an initial public offering. While certain provisions of the Bill might change during its second reading, such amendments will likely be minimal.

The Bill establishes an independent body called the Capital Market Authority (the "Authority"). The purpose of the Authority is to:

  • Regulate securities activities to ensure that they are equitable, efficient, competitive and transparent;
  • Raise public awareness of securities activities as well as the benefits, risks, and liabilities associated with investing in securities;
    Apply a policy of full disclosure to prevent conflicts of interest and insider trading; and
  • Ensure compliance with laws and regulations related to securities activities.

In achieving the objectives stated above, the Authority is charged with the following duties:

  • Filing civil and commercial litigation related to various provisions of the Bill and the regulations issued under the same;
  • Receiving criminal complaints about violations of the Bill and making administrative investigations regarding the same and forwarding the results to the Authority's Disciplinary Board.
  • Detecting crimes as stipulated in the Bill and referring criminal complaints to the public prosecutor, whether the suspected crime is against the Authority or dealers in securities activities;
  • Inspecting and monitoring the activities of persons licensed under the Bill;
    Buying, holding, and disposing of property and taking all legal actions relating to the same;
  • Printing and disseminating material related to securities activity; and
    Imposing fees and fines within the limits of application of the Bill.

While the Authority maintains the legal status of an independent body, it is monitored by the office of Kuwait's Prime Minister. The Authority has a Board of Commissioners (the "Board") consisting of five full-time commissioners that are appointed by emiri decree. The Board is charged with the following duties under the Bill:

  • Issuing the regulations and instructions necessary to implement the Bill as well as conducting studies and making recommendations for the development of the Bill;
  • Issuing licenses to stock exchanges and monitoring all related activities;
  • Issuing licenses for membership to stock exchanges and licenses for any person working in the management of securities activities, including asset management companies, investment funds, brokerage firms, finance companies, custodial institutions, and advisory services, etc.
  • Organising the promotion of investment funds and other collective investment systems;
  • Organising and supervising public and private subscriptions for Kuwaiti and non-Kuwaiti securities;
  • Organising and supervising mergers and acquisitions;
  • Establishing rules that supervise and self-regulate securities activities;
  • Approving and adopting rules and regulations established by the KSE;
  • Establishing rules of engagement, ethics, efficiency, and integrity of the persons authorised to and adopt it;
  • Providing appropriate systems to protect clients and reducing inappropriate and illegal and unfair securities activities.
  • Cooperating with foreign regulatory bodies and institutions in organising and participating in joint activities; and
  • Establishing regulations and systems and procedures required by the activity of each person acting in accordance with the provisions of Islamic Sharia'a.

Besides establishing the Authority, the Bill provides for a Stock Market Court, which is established by the Court of Cassation. The Stock Market Court consists of:

  • Disciplinary sectors that are concerned with disciplinary lawsuits related to criminal actions as stated in the Bill. These sectors follows the processes stipulated in Kuwait's criminal law regulations for processing criminal actions; and
  • Non-disciplinary sectors that specialise in non-criminal actions and handles commercial, civil, or administrative issues. These sectors are implemented according to the regulations of law and the organisational lists that are concerned with the stock market.

Kuwait's Court of Appeal forms penalty and non-penalty divisions that specialise in reviewing the appeals of the decisions issued by the Stock Market Court.The Authority is also granted a legal department that is directly in charge of all legal issues arising from the provisions of the Bill and will appear before all courts and arbitral tribunals. The legal department will also provide legal opinions, conduct investigations, and prepare projects and proposals for laws, regulations, and decisions related to securities activities.In addition to the above duties, the Authority has the power to impose tough penalties for any violations of the provisions within the Bill, such as:

  • Insider trading,
  • Misleading investors,
  • Making false claims about the Authority's procedures or decisions;
  • Practicing a profession or activity without a proper license from the Authority;
  • Failing to report necessary documents to the Authority; and
  • Interfering with the Authority's investigation and monitoring activities.

In addition to the penalties for violating the Bill's provisions, the violator must refund the value of the financial benefit or avoided loss due to contravention of the Bill. The Court may also issue a ruling to partially or permanently suspend anyone from board membership or an executive director position in a company and may bar an individual who is proven guilty of committing a crime specified in the Bill from engaging in securities activities.

Conclusion

As stated above, the Bill introduces the first regulatory body designed to monitor securities activities in Kuwait to provide for transparency and accountability. Such a push will likely boost investor confidence and allow Kuwait's securities market to be competitive with foreign markets.Update: The National Assembly passed the Bill in the second and final reading on February 3, 2010 with only one opposing vote. While there have been some minor amendments, the Bill largely remains intact.

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