Published in the November 2009 edition of the Business Today magazine in Oman
Taimur Malik
Comprehensive implementing regulations are crucial for the effective implementation of any important legislation. The Capital Market Law promulgated by Royal Decree 80/98 is one such legislation. The first set of executive regulations in relation to the Capital Market Law were issued in 2001 and were subsequently supplemented by specific regulations relating to important areas covered by the Capital Market Law.
These included Regulations relating to Investment Funds (Administrative Decision 10/2004) and Rules and Guidelines on Disclosure by Issuers of Securities and Insider Trading (Administrative Decision 5/2007).
The Capital Market Authority (“CMA”) earlier this year issued new Executive Regulations (Decision No. 1/2009) of the Capital Market Law with a view to consolidate and harmonize the existing rules and regulations in this respect. The new CMA Executive Regulations (the “Regulations”) are being viewed by stakeholders as a positive step towards the development of the capital market in Oman and signify the desire of the authorities to improve the effectiveness and implementation of the market’s standards and procedures.
The new Regulations are comprehensive in nature and cover matters including, inter alia, initial public offerings, listing and trading of shares, clearance and settlement on the Muscat Securities Market (the “MSM”), disclosure requirements, insider trading, Investment Funds, Credit Rating Companies and conciliation provisions.
Initial Public Offerings
The Regulations cover in detail the procedures and requirements for public offerings and rights issues of shares. The regulations require the company desirous of issuing the shares to appoint an issue manager who shall liaise with the company and CMA in this respect. The most important steps relate to the preparation of the prospectus and its submission to CMA. The Regulations also include provisions on the procedures to be followed by the company and the issue manager.
Private Placement of Shares
The Regulations also cover the issue of shares in private placement and the procedures to be followed by the public joint stock companies in this respect. The Regulations require the company to convene an extraordinary general meeting to obtain the approval of the private placement of shares and then submit the draft prospectus to CMA for its approval.
Public Issues of Bonds
The Regulations provide that a joint stock company desirous of issuing bonds pursuant to the provisions of the Commercial Companies Law shall obtain CMA’s approval and list the documents to be submitted by the company with its application.
The Regulations also provide that CMA may require the company to provide a certificate of credit rating and detail the rights of the bondholder’s agent in relation to the protection of the bondholders’ interests.
Listing and Trading of Securities
Part III of the Regulations mainly relate to the listing and trading of securities and provide the procedures to be followed by joint stock companies and investment funds in this respect. The Regulations provide that the listing of securities shall be pursuant to the decision of the General Manager of the MSM which shall be issued within one week from receiving the complete application by the company and the decision shall also indicate the appropriate market segment where the security would be listed.
The Regulations provide for three market segments where the securities may be listed according to their specifications (shares of public and closed joint stock companies, units of Investment Funds or bonds). These include the Regular Market, Parallel Market and the Third Market.
With respect to the trading of securities, the Regulations specify the powers of the CMA and MSM and the obligations of the brokers. The Regulations also cover the authorization procedures to be followed by brokers. For example, the Regulations provide that the broker should maintain a telephone conversation recording machine to receive authorizations by telephone and in case of any verbal authorization that is not recorded on the recording machine the broker may be liable in the event of a dispute with the client in relation to that particular authorization.
The Regulations also cover procedures for trading through the internet, priority for execution of orders in the trading system and the trading sessions.
Companies Operating in the field of Securities
Part IV of the Regulations relates to incorporation and licensing requirements for companies and branches of foreign companies desirous of carrying out business in the field of securities. The Regulations specify the information to be submitted to CMA for its approval and the activities that may be undertaken by the licensed companies according to their paid-up capital. The minimum paid-up capital and shareholders’ equity requirement for a company undertaking Custodian activities is RO 3 Million and for Brokerage activities it is RO 700,000. The minimum limit for licensed companies undertaking marketing of non-Omani securities and acting as Agent for bondholders is RO 200,000. A licensed company that seeks to carry out more than one activity needs to satisfy the minimum paid-up capital and shareholders’ equity limits separately for each activity.
Branches of foreign companies can undertake only four activities including investment advice and research, marketing of non-Omani securities, issue management and portfolio management.
The Regulations also specify the duties and obligations of the licensed companies with respect to each activity and disclosure requirements to be observed by the licensed companies.
Credit Rating Companies
According to the Regulations, Credit Rating Companies include Credit Rating Agencies and Credit Bureaus.
The Regulations specify the requirements for obtaining CMA’s approval for the establishment of such companies and obtaining the relevant license.
The Regulations provide that the activity of Credit Rating Agencies is to be limited to providing opinion on the potential credit solvency of banks, companies, securities and loans through analysis of available information relating to issuers and borrowers and the background information relating to the sector they represent and the economic factors that affect such sector.
Similarly the activity of Credit Bureaus is to be limited to collecting information on the clients of providers of credit facilities and matching and processing of such information to prepare credit reports and any other analysis on the credit history in a certain activity or sector.
Investment Funds
The Regulations provide that an investment fund may take the form of an open-ended fund or a closed-ended fund. The funds aiming to invest in real estate can only be in the form of a closed-ended fund. Open-ended investment funds are funds with variable capital and their capital can be increased with the issuance of new investment units whereas a closed-ended fund has a fixed capital whose investment units are only redeemable after the expiry of its term.
The Regulations specify the procedures to be followed for the establishment of an investment fund and the information to be included in its articles of association and the prospectus. The Regulations also include provisions on investment rules, calculation of the Net Asset Value (NAV) and Net Realized Value (NRV) and listing, trading, issuance and redemption of the units.
The Regulations also have detailed provisions on fund management and the duties and obligations of the Investment Manager, Custodian and the External Auditor.
Disclosure Requirements and Insider Trading
Part VII of the Regulations list the disclosure requirements for issuers of securities and the procedures to be followed in this respect. The Regulations also require the timely disclosure of material information by issuers to MSM through the electronic transmission system.
According to the Regulations, insider is a person who has access to undisclosed material information by virtue of his position and includes the directors, executive management and anyone who may obtain such information through his family or personal or work relations or otherwise. The Regulations prohibit insiders from dealing in the securities of the issuer on the basis of undisclosed material information.
The Regulations also include provisions on the formation of a Disciplinary Committee and the Appeals Committee. The last part of the Regulations lists the description of the fees to be collected by CMA.