Boursa Kuwait, the region’s fourth-biggest equities exchange by market capitalisation, on Sunday launched an over-the-counter trading platform, becoming the first Arabian Gulf exchange to offer stocks of unlisted companies.
The bourse, which is implementing structural reforms and widening its product offerings to attract more investors, has developed the OTC platform to “serve investors looking to trade in unlisted securities, with a main focus on creating a new, credible and transparent investment system”, the exchange said on its website.
“[It] gives small companies and start-up businesses that do not qualify for listing in the official market the opportunity to grow, and simplifies procedures”.
OTC trading, which is prevalent in developed markets, involves trading shares in smaller companies which may not meet stricter requirements of the main stock exchanges or may be reluctant to go public. Although Saudi Arabia’s Tadawul, the region’s biggest bourse, and Abu Dhabi Securities Exchange do not offer OTC in unlisted companies, both exchanges have alternative platforms to accommodate the listing of smaller companies, which are less regulated than those trading on the main indexes.
In the past, trading of unlisted securities in Kuwait was a manual process characterised by “shortfalls and lack of transparency”, according to its statement, that undermined the credibility of prices and made the clearance on executed trades difficult. The exchange has restructured the previous system to bridge all legal gaps that were encountered in the previous mechanism, it said.
[ Exclusive: Kuwait bourse expects wave of IPOs and 15% more capital inflows post-FTSE upgrade ]
[ Kuwait Finance House third quarter net profit rises 31.4%, beating estimates ]
[ Kuwait joins FTSE Russell, affirming ‘safe haven’ for foreign inflows ]
Through the OTC platform, all trades will now be executed by licensed brokerage offices and carried out in a similar way to the official market, and companies should keep all records of shareholders through an authorised clearing company, the exchange said.
“All trades are subject to the rules and regulations of the OTC rulebook, whereby clients assume the responsibility for the risks that may result from such trades and investigating the financial and legal status of the company that they wish to trade securities from,” the Kuwaiti exchange said.
Kuwait is in the midst of a five-year programme to bring its capital markets in line with global standards and attract more foreign investment to the country. The bourse, which was upgraded by FTSE Russell to emerging market status in September, has implemented a number of reforms including segmentation of stocks according to market capitalisation and liquidity, and publication of foreign ownership data. It plans to introduce stock lending and borrowing, short-selling and listing of real estate investment trusts in the first quarter of 2019, its chief executive Khaled Al Khaled told The National in October.
The bourse, which will see two public offerings by the end of the year, still intends to list in 2019 and expects to record as much as 15 per cent more in capital inflows following its inclusion in the FTSE Russell index.