Arab governments should open up their stock markets and let them become public companies to give them greater flexibility to attract foreign investment, the chief executive of Jordan's bourse told Reuters. Many Arab exchanges are managed by governments which appoint the bourse chief and set legislation.
Analysts and brokers say that government ownership hinders transparency and competitiveness and reduces the quality of services.
Many governments also restrict foreign investment by imposing higher taxes on investments and profit and limiting foreign shareholdings in individual companies.
"Many Arab markets (were) formed by central banks or governments... The global trend (is) heading towards transforming the exchanges to public companies," Jalil Tarif said in an interview on Tuesday.
"The purpose is to give the bourses more flexibility in taking decisions. (Then) decisions will be based on profit and loss in a framework governed by legislation and supervision to ensure there will not be conflict of interest." "Finding an environment of more freedom in markets and flexibility definitely encourages investment and attracts foreign investors to deal on the exchange," he said.
While many in the region acknowledge the need to reform markets, only few openly raise the issue of government control. Saudi Arabia, the biggest Arab bourse by far, is a closed market at the government's direction, while the Abu Dhabi and Dubai bourses are partly government-owned and regulated by Emirates Securities & Commodities, an arms-length state entity.
Heads of bourses in Kuwait, Egypt and Syria are also appointed by the government. Algeria's bourse is state-owned. Syria last year let foreigners own listed stocks but its nascent bourse did not attract a single non-resident investor because of regulations requiring brokers to gather meticulous information on them. Tarif said government control allows only a fraction of the market to be available for dealers, traders and investors, while opening up the exchange would expand it and give it depth.
"When the free float is limited then the market will be exposed to any influence even the slightest effect will relect negatively on the market."
"The main job of the market is to fairly explore the price of securities - so how do I explore the fair price of securities if there are obstacles before the market in flexibility, in supply and demand and in depth?"