BMA consultation on securities & exchange regulations

The proposed Securities and Exchange Regulation (SER) is an enabling law for the securities industry in the Kingdom. It will apply to all participants of capital market related activities, including offering of securities, stock exchanges, clearing houses, brokers-dealers, representatives, investment advisors, custodial services, corporate finance advisory services, training and examination services and all other regulated activities related to capital market products and services.

The proposed regulations were necessitated after the BMA assumed responsibility for regulating and supervising the entire financial services sector, comprising banking, insurance and the capital market.

In line with its expanded responsibilities, assumed in August 2002, the BMA established its Capital Markets Supervision (CMS) Directorate, which is directly responsible for regulating and supervising the capital market and all institutions and individuals engaged in any activities related to capital markets.

"The overall aim of the SER is to protect investors and maintain orderly, transparent and efficient securities markets, without impeding the freedom of capital movements," said H.E. Khalid Abdulla Al Bassam, Deputy Governor of the BMA.

"The new rules are also in line with BMA's established policy of implementing international best practice in all aspects of financial regulation."

The SER is based on existing regulation governing the Bahrain Stock Exchange (BSE), as well as international best practice, especially recommendations and standards specified by the International Organisation of Securities Commissions (IOSCO), and other international professional institutions.

The proposed SER provides for the establishment of exchanges other than securities exchanges, like futures exchanges, as well as recognized trading system providers (overseas exchanges).

The new regulations are a composite of 16 Chapters covering all regulated activities related to the capital markets businesses and institutions.

The proposed SER covers the offering of securities, both equity and debt securities and their documentary requirements. It regulates the business of clearing houses to maintain effective and efficient handling of investors' accounts and application of collaterals, and proceedings of clearing houses business rules over the law of insolvency.

The Capital Market Conduct Chapter contains specific rules prohibiting insider trading, price manipulation and market manipulation, while the Chapter on Books, Clients' Assets, and Audit sets strict rules, to ensure stability and minimize any potential default, and systematic and operational risks.

A Chapter on Conduct of Business sets stringent new standards for the licensing of market intermediaries, including prudential and ongoing obligations, specifying prohibited conducts and emphasizing the relationship between brokers and their clients. In addition, it provides strict guidelines on investment advice provided by intermediaries and their representatives.

In compliance with IOSCO requirements, the SER provides for cooperation and exchange of information with foreign regulatory authorities.

The current consultation period runs until 11th March 2004 and the consultation paper is available for the public on the BMA website at www.bma.gov.bh

"We welcome comments from industry and other interested parties, including listed companies, brokerage firms, auditors, advisors and law firms, to the proposals detailed in the consultation paper," said Mr. Ali Salman Thamer, Director, Capital Markets Supervision, at the BMA.

"The BMA has an established policy of consulting with industry prior to the issuance of any new regulations and amendments to existing rules and regulations."

The SER is the latest in a series of rules being issued to continuously develop regulation related to the capital market.

The regulatory development programme is a major component of a strategy being implemented by the BMA to reinforce Bahrain's reputation as the financial capital of the Middle East.