Oman's Capital Market Authority founded upon lessons learned
H.E. Sheikh Abdullah Salem Al-Salmi, Executive President of CMA explains to United World how the sultanate is endeavoring to grow its capital market and increase transparency in the business sector
Kindly discuss the Capital Market Authority’s (CMA’s) milestones since its establishment in 1998.
Oman’s capital market practice is relatively short, as the first official securities market was established in 1989, under the then Ministry of Commerce & Industry. Prior to that, joint stock companies used to raise funds and trade their securities unofficially through certain arrangements between the buyers and the sellers. Records were kept with companies and investors were given a receipt confirming their title.
After its establishment, the exchange undertook the functions of the exchange, the clearing house, central depository and the regulator at the same time. This situation continued until 1998 when the whole structure of the capital market was reviewed after MSM (Muscat Securities Market) crash in 1998. According to the new structure the Capital Market Authority was founded to be the regulator for all elements related to the capital market in Oman. At the same time Muscat Security Market and Muscat Depository and Settlement Co. were created as an operator and central depository governed by the CMA.
This was probably a reaction to what happened in the market but to me it was the real start of the modern capital market era in our country. We were the first in the region to separate the regulator from the operations and the first to have a private company to act as central depository. So this was the first significant milestone in the history of CMA and of course the whole capital market.
During its first years, CMA had to address number of issues, mainly those arising from the crash in 1998. The capital market law – by which CMA was founded – set up the main general guidelines, principals and policies on how the capital market should be regulated. Thus we had to work out the regulations and the procedures to license, supervise and regulate all market participants. The intention was to cater for establishing a sound capital market that protect investors’ interests, provide for better utilization of the market for economic development of the country, and at the same time enhance the role of market participants to enable them to perform their duties in a professional and trustful manner. While doing so, of course we had the crises of 1998 always in our minds, so to make sure it doesn’t happen again. This is what all regulators try to do.
In addition, and due to the damages caused by the crisis, we had to put tremendous efforts into restoring market confidence. To do so, we thought that the main source of investors’ confidence comes from their faith in the way companies in which they put their money are managed. So we started talking to the Ministry of Commerce and Industry to transfer the responsibility of supervising public companies to CMA for better compliance with our regulatory requirements.
These companies are required to strictly adhere to transparency and discloser requirements to keep investors informed about their investment all the time. They are also required to comply with the requirement of the corporate governance code, which was issued by CMA in 2002. The code deals with various matters concerning the way companies are managed. In particular, it sets the responsibilities of boards of directors, their committees and the management, as well as the relation between the company and its shareholders. The code also defines the related party transactions and the way they are dealt with.
The first thing is to make people aware of what risk management is, and how crucial it is in our daily operations. Risk management, after all, is a way for a company to anticipate the risks it is facing and how to mitigate these risks.
What we did in this regard can be divided into two main aspects. Firstly, we tried to educate people and create awareness with both investors and the professionals who run the show to enable them to be knowledgeable with the risks associated with their actions.
Secondly, as regulatory body try to make sure that all companies under our jurisdiction are having the right systems as required by the regulations in order for them to be able to handle any unexpected circumstances at any time.
Finally, from the reports we receive from the companies operating under our supervision, we try also to identify potential risks and try to deal with them with the concerned parties. In addition, the standards that are enforced on companies which are meant initially to help them avoid systemic risk.
What are the latest developments taking place in the CMA?
Apart from our daily businesses, we are now working on Islamic Finance. Islamic finance was approved in the sultanate last year, and this is keeping us busy for the time being. Both financial market regulators, the CBO (Central Bank of Oman) and the CMA are busy amending the rules and regulations to accommodate IF. This will include Takaful insurance, Sukuk, Islamic funds, and the like. We hope to have the legal framework to license and supervise institutions that are in compliance with Shariah before the end of the year. In addition to that there is the issue of mortgage finance which needs to be tackled as there are number of applications to setup special companies to deal with this type of financing. I think we will need to discuss this matter with CBO to decide on how to go about it.
How does the CMA ensure transparency for investors in the market?
One of CMA’s main objectives is to provide the highest degree of transparency in disclosures and to support and develop investment culture in securities market and to ensure that shareholders are equipped with adequate information for decision making through proper monitoring the compliance and timely and required disclosures; and effective implementation of rules and guidelines.
This is according to Article (291) of the Executive Regulation of Capital Market Law that states that issuing parties shall immediately disclose all of their main information and information related to them or to their affiliates. Disclosure is done by preparing a statement in Arabic and English and sending all information to MSM through an electronic system. The issuing party bears liability towards the information’s adequacy and accuracy. Moreover, the board is responsible for ensuring the company’s compliance with disclosure rules. Also, disclosures and transparency rules are continuously reviewed and evaluated in order to develop the standards of disclosure and transparency in securities market. CMA has recently noticed remarkable development in the companies’ compliance with disclosure rules because of governance awareness spread among listed companies.
The Investor Trust Fund (ITF) is run by the Muscat Clearing & Depository Company (MCDC), which is under the supervision of the CMA. How much has the CMA received since the inception of ITF in 2004?
MCDC assumes, through the management of the records of Investor Trust Fund, the role of protecting investors by collecting their funds with public joint stock companies unclaimed for more than six months and keeping them as trust in the Fund and then communicating with the owners. Since the inception of the Fund up to the end of 2011, CMA received more than RO 10 million representing the rights of share-holders in the public companies.
Fund received dividends from public joint stock companies during 2011 at RO 1.211 million pertaining to more than 24,000 investors. MCDC distributed in the same year more than RO 1 million to 6,266 investors.
How do you communicate with the broader market? What programs have you put in place to educate the Omani population?
CMA endeavors to disseminate awareness among all the segments of the community, educate investors as regards securities and explain the mechanisms of CMA’s role and activities. CMA organized lectures, seminars and conferences with the participation of local and foreign civil community institutions and economic institutions. CMA also publishes a monthly bulletin summarizing the key events related to CMA as well as quarterly economic magazine and quarterly bulletin on insurance sector.
We have been educating our investors through organizing seminars, workshops, conferences and lectures, besides issuing various publications. Recently we organized the Capital Market Awareness Campaign 2011 so as to tour all parts of the sultanate to introduce the capital market and insurance market and to educate investors and policyholders in addition to stressing the importance of savings and investment through lectures and seminars by professionals and experts.
All of us aware that the impact of the global financial crisis has been felt in all developed countries including GCC but it has had no or little impact on Oman. However, we experienced the impact at a very low magnitude. There was a capital outflow due to diverting funds by foreign investors during this period. Looking from the realities, we have a strong economy and the fundamentals of companies. Besides, the major financial indicators of the listed companies are at an increasing trend. CMA, with the support of Government, established “Investment Stabilization Fund” to protect from further impact of the crisis. Expansionary fiscal and monetary policies by CBO to support demand and maintain liquidity in the market are the contributory factors for this performance.
In response to the global financial crisis that emerged in September 2008 and to provide the highest degree of disclosure and transparency to the market participants in view of the global financial crisis, CMA issued a circular to all public joint stock companies and investment funds listed in MSM to disclose their quarterly financial statements for the nine months ending on September 30th, before the end of the statutory period set for such disclosure. CMA also requested the listed companies and investment funds to disclose any direct or indirect impact of the global financial crisis on the operating status and financial position through the regular channels to CMA, MSM and market participants.
What have been CMA’s key human resource development activities?
CMA recognizes that the quality of human resources is significant to developing and regulating a complex and dynamic industry and our human resource policy is aimed at developing capable professionals, specialists, experts and managerial talent that will drive results and advance the organization’s objectives. Our employees are constantly challenged to learn and evolve their skill sets to map or even be ahead of the continuous changing financial landscape.
On its part, CMA works towards ensuring an ideal environment where people can contribute. Through various programs, CMA employee can gain breadth and depth of experience; four in-house training programs were carried out. 166 employees took part in 29 training programs, 64 employees participated in various dynamic events ranging from conferences to lectures and seminars inside the sultanate and abroad.
Recently CMA participated in different programs in Arab and international domain with the participation of 23 employees, these included but not limited to: Understanding Financial Products and Regulatory Impact (IOSCO), Workshop on Islamic Financing and a training program on the Role of SROs, etc. 53 employees participated in 31 events abroad in the form of delegations, official visits, conferences, seminars and meetings.
In the training field, we concluded a mutual cooperation agreement with Bombay Stock Exchange Institute to conduct training programs in the field of financial markets and a program on “Analysis of the Dynamics of Financial Markets”.
Oman has a fairly developed network of physical infrastructure which attracts large foreign investment. The sultanate’s financial system operates in a deregulated and competitive environment within an open economy framework. Oman’s banking system is sound, well regulated, profitable and resilient due to appropriate regulatory and supervisory policy pursued by the CBO. Omani banks could be able to weather the recent global financial crisis with minimal disruption in the intermediation process mainly due to no direct exposure to toxic financial assets or to distressed financial institutions. The Omani Rial is pegged to the U.S. dollar, which provides stable exchange rate to the investors.
The Government provides a congenial investment climate by offering several incentives for investment in Oman. While the Government is expected to sustain its investment program, particularly in the infrastructure sector under the Five-Year Development Plan (2011-2015), the environment for the private sector investment is also improving steadily following sustained recovery of the Omani economy. The Gross Domestic Product (GDP) of Oman at current prices grew at 22% in 2011, same as in the previous year, despite adverse global developments. The price situation has been under control as the average inflation rate in Oman was 4% in 2011, slightly higher than 3.3% in the previous year. Under the WTO commitment, foreign ownership in Oman is allowed up to 70%.
Moreover, local operation through 100% foreign branches is also permitted in many sectors. There are no restrictions on repatriation of profits or capital since Oman has an open capital account. There is provision for tax holidays up to five years. The sovereign rating of Oman continued to remain attractive during the recent years. Oman has a very low debt-to-GDP ratio and therefore, servicing of outstanding debt does not pose any problems in the foreseeable future. In view of the above, Oman provides a safe, stable and favorable environment for investment activities.
Project Director: Barbara Jankovic