CMA approves amendments to book-building instructions, IPO allocation method

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The Capital Market Authority's (CMA) board issued its resolution approving the amendments to the instructions for book building process and allocation method in initial public offerings (IPOs), effective as of Jan. 1, 2023, according to a statement.

The main amendments included stipulating the role of the financial advisor in coordination with the issuer to allocate a percentage of the offering to public funds, provided that the authority approves such a quota.

If there is insufficient coverage from public funds for the percentage allocated to them, this allotment will be deducted within the limits covered by the public funds, CMA added.

These amendments come as part of developing the allocation percentage for individual investors, whether directly or indirectly, through individuals' ownership of units in public funds.

They also included giving the financial advisor the power to determine the parties eligible for participating in the book-building process out of those stipulated in the relevant instructions, provided that public funds are among them.

The instructions emphasize the obligation of the issuer's financial advisor and any other capital market institution associated with receiving bidding participation applications to make the necessary arrangements and procedures to ensure documenting the bidding participation applications and verifying their validity.

That is besides verifying the financial solvency of the participating entities and their ability to pay the value of the shares requested in the bidding participation application when allocated to them, before registering bidding participation applications.

This is to ensure the efficiency of the book-building process and the offer pricing, coming as part of the capital market institutions' responsibilities to comply with practicing their business with skill, care and diligence, while adhering to the proper market conduct.

The amendments are in line with the CMA's continuous efforts for regulating the book-building process and allocation method in IPOs, following the review of the top practices in the global capital markets.

Last March, CMA published the draft amendments to the instructions for the book-building process and allocation method in IPOs for public consultation for 30 days until April 14.

The market regulator said all comments will be taken into consideration to finalize the draft changes.