Saudi market regulator may raise IPO allocations for institutional investors

Saudi Arabia’s Capital Market Authority (CMA) said on Monday that it may increase the percentage of allocated shares in initial public offerings for instituitonal investors, while reducing share allocations for retail investors.

The move comes as the market watchdog aims to reduce market volatility ahead of Tadawul's anticipated opening to foreign investors on June 15. It also comes in response to complaints over the current system, which is perceived by some as being biased towards retail investors.

There have been concerns surrounding the domination of retail investors who buy stocks directly from the market rather than through professional fund managers.

Retail trading in the kingdom has been higher than most big markets in the world, as the Saudi fund management industry was slow to develop. These investors often seek short-term gains, which may result in the bidding of stocks up sharply and more volatility in the market.

The June 15 opening of the Saudi market to foreign investors is a much-anticipated move for international funds keen on gaining access to the Arab world’s biggest economy and the region’s fastest-growing companies.

In preparation for the opening, the CMA had recently begun imposing regulations with the intention of boosting the participation of funds. The regulator has refrained from putting restrictions on fund managers’ ability to sell or buy a stock in accordance with the interest of investors.