Market shake-up deepens in Kuwait in a move to attract stock investors – Boursa Kuwait announces second phase of market development

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KUWAIT CITY, April 1: Boursa Kuwait announces that the second phase of market development, which encompasses transformational changes such as a three-tiered, segmented market, the introduction of new market-capitalized indices and circuit breakers on securities and indices to curb volatility, as well as entirely new listing requirements has begun on Sunday, April 1, 2018.

This phase will mark a milestone within Boursa Kuwait’s mission to to develop a liquid, reliable and sound capital market providing issuers with efficient access to capital, and investors with diverse return opportunities, which is set to see Boursa Kuwait fortify its position as a leading regional exchange.

The new market segmentation is a particularly major step, creating a Premier, a Main and an Auction market, each with unique characteristics and obligations. Boursa Kuwait will also introduce new market-capitalized indices, which represent the segmented markets. All sectorial indices will be reset to reflect the start of the new markets.

As part of the second phase, the Boursa Kuwait Rulebook, which can be found on the website, will also be modified. All members must comply with the updated rules, which include new listing requirements reflective of the market segmentation effective April 1, 2018. Moreover, a circuit-breaker system on securities and indices will be launched as a measure to prevent potential market disruptions.

During the recent Annual Capital Markets Authority Conference, Boursa Kuwait CEO Khaled Abdulrazaq AlKhaled highlighted that the second phase of market development is targeted at resolving some issues the market is currently still facing: “We believe that the platform and infrastructure we have developed in the past two years provides a solid foundation for the next chapter of Boursa Kuwait’s success story.

As we make headway in the implementation of our market development plan, we will transform our capital market structure to become more attractive for local and international investors, which will allow us to work towards a higher classification by index providers.”

Boursa Kuwait has an unequivocal commitment to pursuing best practices and increasing transparency for the benefit of their stakeholders. Its strategy focuses on developing the overall market status and addressing the needs of market participants through the provision of investment tools, restructuring the market to increase its competitiveness and liquidity, and attracting investments from local and international investors.

A new set of changes were implemented in Bourse Kuwait on Sunday, April 1 with the aim of increasing the number of initial public offerings and attracting investors. Stocks in Boursa will be divided into three sections based on criteria including market capitalization and volume of shares traded, reports bloomberg.com

New indexes including a “Premier Market” that groups together 16 of the largest and most liquid companies in Kuwait will be introduced. Each of these 16 companies in the so-called Premier Market will have a market capitalization of at least KD 144 million ($481 million) and an average daily trading of at least KD 90,000. An index tracking this segment will gather about 60 percent of the current total market capitalization. The companies will be requested to hold quarterly analyst conferences and make filings in both Arabic and English.

National Bank of Kuwait (NBK) SAKP, Mobile Telecommunications Company (Zain), and logistics company Agility Public Warehousing Company will be included in the Premier Market Price Return Index.

The Main Market, which is a second market level, will have 148 members and will cover stocks with average daily trading of KD 22,500 to KD 90,000.

A third layer of stocks with low liquidity, regardless of their market value, will fall under the Auction Market.

Six months ago, index compiler FTSE Russell had classified Kuwait as an emerging market, with implementation starting in September. The inclusion is expected to draw $826 million to Kuwaiti stocks, according to estimates by EFG-Hermes Holding MSCI Inc, which classifies Kuwait as a frontier market.

Last year, authorities started implementing a series of measures update infrastructure for equities trading with the goal of stirring international interest in the market and bringing back to life a large portion of its shares that barely move each day.

The benchmark that is in place now has 156 members. On any given day, at least 40 of those have closed unchanged in the past five years.

The changes were implemented after five extensive tests performed with all the participating parties, in order to ensure that they and their automated systems are ready to accommodate all the changes related to this phase. The list of participating parties includes the CMA, Boursa Kuwait Company, Kuwait Clearing Company, financial brokerage companies, investment companies and a number of local and international banks. The development process of this phase includes the following:

Dividing the market into three markets based on the liquidity and capital value of each listed company. The markets are as follows:

* Premier Market

* Main Market

* Auction Market

* Applying different trading fees and commissions for each of the three markets

* Launching new weighted indices, which include an index for the Premier Market and the Main Market, and a general index for both.

* Activating the mechanism of the continuous circuit breakers of the market index, where halt of securities trading composed of the intended index when it reaches the specified percentage is down to a specified period, up to the maximum limit of decline where the halt of trading is set until the end of the session.

* Activating the mechanism of circuit breakers of continuous trading of securities where trading will halt on a security, and the auction period will be entered to determine the reference price when reaching the specified percentage, whether rise or decline.

* Activating new listing procedures and rules to attract companies with outstanding performance, and enhance the process of qualitative listing.

* Activating the Buy-in Board with a settlement period (T+1) in order to ensure that the defaults resulting from securities transactions are settled if the securities are not available for the seller.

* Provide the late confirmation feature of the Custodian.

* Facilitate special transaction procedures.

* Working by electronic distribution of cash profits.

The MD consists of four phases. The CMA has based the changes made during the achieved phases on the principles of the financial market infrastructure, in addition to the international standards established by the rating institutions. These changes are a continuation of the development process that was completed in the first phase of the project (MD-1), and they are a step forward for the next phases.

It is worth mentioning that MD-1 was launched on May 21, 2017 (the first interim phase of the formerly called Post-Trade Model project), which was one of the most important factors that led to upgrading the capital market in the State of Kuwait to a Secondary Emerging Market status by FTSE Russell. These changes have also had a significant impact in reducing defaults rates of transaction and enhancing investor confidence in capital markets.

During the conference, Mishaal Al-Usaimi extended his appreciation to all teams working on this project, consisting of the CMA, Boursa Kuwait Company and Kuwait Clearing Company, in addition to the financial brokerage companies operating in the market, and praised the efforts put forth by all parties towards launching MD-2.

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