Jul. 15, 2015


HE Nayaf Falah Mubarak Al Hajraf

Kuwait

HE Nayaf Falah Mubarak Al Hajraf

Chairman, Capital Markets Authority (CMA)

"We are in the final stage of issuing the bonds as well as sukuk regulations."

BIO

HE Nayaf Falah Mubarak Al Hajraf has served as the CMA since September 2014. He holds a PhD in Accounting and Finance and has extensive experience in both the private sector and public service. He previously served in influential positions such as Minister of Education, Minister of Finance, and Commissioner on the first Board of the CMA from 2010 to 2012. He has held numerous directorship and consulting roles such as Director of the Board of the Kuwait Investment Authority and Board Member of the Supreme Council of Petroleum.

How have the activities of the CMA evolved since the inception of the authority in 2010?

The initial four years were challenging for the authority. The CMA came in to regulate a market that had been in place for at least 30 years since the establishment of Kuwait Stock Exchange. That role was previously given to a Market Committee headed by the Minister of Trade and Commerce, which did not reflect proper governance or match best global market practices. The CMA has separated the regulator from the market itself. Over the last four years, the CMA has been busy issuing the by-laws, building capacity and organizational structure, and recruiting young talented Kuwaitis to serve within the CMA. It takes time for a regulator to really see the full picture based on what the law has actually asked the market to do. Moving into our second four-year term, we started by amending 65 articles out of the 164 in the original law passed by the national assembly. These amendments have given the CMA the strength the power and the tools to meet international standards. We have very challenging tasks ahead. One of the most important tasks is joining the International Organization of Securities Commissions (IOSCO). The second is to upgrade the Kuwaiti market to emerging market status. This will be very important for the economy and the market and will reflect the long and deep history of the Kuwait Stock Exchange and trading within the country. We are putting all of our efforts and resources forward to make sure that the market will be upgraded; this is our target.

What are some of your regulatory focuses to make sure that Kuwait is moving toward that upgrade?

First of all, we need to work very closely with the three main entities within the market: the Kuwait Clearing Company, the newly established Kuwait Bourse Company, and the brokerage firms. We are restructuring the role of these three entities in order to meet the international standards and prerequisites for the Kuwait market to be upgraded. We are working together to make sure there is a clear line of authorities and responsibilities, and that there is transparency, full disclosure, efficiency, and competitiveness in the market. The region is very competitive, and we would like to make sure that Kuwait Stock Exchange maintains its historical status. At the same time, we cannot work on this target without consulting and working closely with other regulatory authorities in Kuwait, mainly the Central Bank of Kuwait and the Ministry of Trade and Commerce. We have signed MoUs with both of them to make sure that there is synergy between the three regulatory bodies and the flows between us are efficient and professional.

What have been some of the major changes in regulations of the stock market over the past year relative to foreign investors?

With the new amendments to the law published in May 2015, the Kuwait Stock Exchange has been privatized. The Kuwait Bourse Company has been established—a first for the Kuwaiti economy. This opens the door for foreign international operators to have a stake of up to 44%. This will serve our interests in upgrading the market by bringing the best know-how into Kuwait and inviting partnerships with the most reputable international operators. We want to encourage foreign investors to come and to stay in Kuwait. By offering up to 44%, we hope international operators will have the incentive to run companies here long term. Second, the new amendment has exempted foreign investors from any taxes; dividends will have no tax nor will there be a capital gains tax. These two factors are addressing our target to promote the market to international investors.

From a regulatory perspective, what is the difference between a conventional bond and a sukuk bond, and how can a company become eligible to issue a sukuk?

We are working on this issue on two parallel fronts. We are in the final stage of issuing the bonds as well as sukuk regulations. Because they are different products, there is a market for each. Bonds are like any other fixed income product in any other market, while sukuk is subject to sharia principles. However, there are also differences within the sharia principles based on the sharia advisory boards. To come up with a benchmark, we have our own sharia advisory board within the CMA. The proposal for the sukuk has been sent to the board to get their final approval. By the end of 2015 it seems we will be able to issue the bond regulations. Having said that, there will be no effective market for the bonds, nor will there be an effective debt market if we cannot encourage the government to issue sovereign bonds, so we are encouraging them to do so.

What activity has the CMA had in terms of licensing investment funds to operate in Kuwait?

The crisis in 2008 changed the entire scene. Investors are looking into their investments very carefully, and in calculating the risk they have become very conservative. At the CMA we have no restrictions as long as investors are meeting requirements. Regulation is one part of the equation, but the market itself is a different thing. We are encouraging the establishment of investment funds, and since the CMA was established there have been at least 20 newly established funds, both local and international.

What framework does the CMA have in place in order to protect both retail and institutional investors?

The best way to protect investors is to educate them at an early stage on the laws, by-laws, and requirements. For that we have conducted ongoing weekly workshops. In these meetings different departments of the CMA present on an open floor and engage in discussions on different topics related to the market and the stock change. Raising awareness is 50% of the task of protecting investors. We maintain an open dialogue and explain the role the CMA plays, which minimizes the risk of violating the laws or the by-laws. The CMA is leading the effort to restructure the capital markets but everyone's participation is needed. The only way for investors to have an active role is to know exactly what is required from them.

What is your assessment of the level of compliance you are seeing with the CMA's regulations?

It is good and, in some areas, excellent. We have seen full compliance in disclosure requirements, listing and delisting, and licensing requirements. We will be finalizing the corporate governance code hopefully by the end of June 2015. This was one of the debatable issues a year ago and was postponed until June 2016 as we made revisions. We are also expecting very high compliance with this regulation.

What are your expectations for the CMA in 2016?

By 2016 we would like to have the corporate governance code finalized, as well as the bonds and sukuk regulations, and the market maker regulations. We would like to enter 2016 by upgrading the financial brokerage firms that are working in Kuwait to international standards. They have been asked to raise their capital to 10 million by the end of 2016. We plan to restructure the post trade model as well. We would like to see the newly created Kuwait Bourse Company start taking the lead and running their stock exchange. Lastly, we would like to become members of IOSCO and begin dialogues with international organizations to form strategic partnerships in terms of training and capacity building for the CMA.

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