Stock market regulator to monitor comments from chief executives

Former Arabtec CEO Hasan Ismaik had on at least two occasions made public statements on how much he thought the shares were worth.

Panicky retail investors rushed to sell off shares last month after Arabtec’s chief executive Hasan Ismaik resigned. Pawan Singh / The National

The UAE stock market regulator will actively monitor the comments of chief executives to ensure they are transparent and truthful following the Arabtec-led market meltdown last month.

The Securities and Commodities Authority (SCA) has launched a permanent committee to review remarks by CEOs and analysts and their material impact on the stock price.

The SCA said yesterday that a technical panel that included the Abu Dhabi Securities Exchange, Dubai Financial Market and Central Bank had been formed.

The committee will “follow up transactions which impact markets to ensure soundness and integrity of trading, and ensure absence of any suspicion of manipulation of securities’ price”, the SCA said in an emailed statement. It will also “monitor statements of CEOs and securities analysts to ensure that they are transparent and truthful”, as well as “review sharp market movements and submit recommendation”, the SCA said.

Panicky retail investors rushed to sell off shares last month after Arabtec’s chief executive Hasan Ismaik resigned, and hundreds of staff were cut, raising questions over the company’s future. Arabtec’s stock lost more than 50 per cent of its value from May to June, triggering a wave of margin calls, squeezing the liquidity of retail investors who currently make up 80 per cent of market traded value.

The subsequent equity rout cut more than 10 per cent from Dubai’s index.

The correction of Arabtec’s shares came after a bull run that pushed its share price up more than 600 per cent over the past two years since Aabar Investments became a strategic shareholder and following announcements of projects and plans aimed at turning Arabtec into a top 10 global contractor.

Mr Ismaik had on at least two occasions also made public statements on how much he thought the shares were worth, further inflating the price.

Mr Ismaik had also been building his stake from 8 per cent all the way up to 28.8 per cent, in what was described as a vote of confidence that would reduce volatility in Arabtec’s share price, when it was eventually disclosed.

Stockbrokers say the recent move by the regulator shows a shift towards a more proactive approach in line with the regulatory environment in other countries such as the United States.

“You have two different views, either the Financial Services Authority of the UK where you have a light set of regulations and set of general principles and act when it impacts the credibility of the market, or the US Securities Exchange Commission, where you must tick all the boxes and comply with forms and its heavily regulated,” said Fathi Ben Grira, the chief executive at Mena Corp, an investment company in Abu Dhabi.

“Had the SCA taken the FSA approach they would have acted before, but now by creating this committee, it appears like they are inclined to be looking at the SEC way.”

Follow us on Twitter @Ind_Insights