Doha’s capital market will soon see the introduction of a book-building process for initial public offerings (IPOs), and a price stability fund to ensure protection for individual and small investors, according to the Qatar Financial Market Authority (QFMA).
These are being considered by the financial regulator as it outlined the offering and listing initiatives that are currently underway in its recently released annual report.
The QFMA exerts efforts to develop its regulations, especially those closely related to enhancing the depth and liquidity of the capital market.
Highlighting that offering and listing of securities rulebook is considered as the organiser of the process of listing on the QSE, the QFMA said many advantages have been added to the draft rulebook and has been circulated for market consultation.
The advantages added include electronic publishing to keep pace with the level of development and cost reduction for the listed companies, and new mechanisms that have been inserted to conduct the IPOs such as book building as well as a ‘price stability fund’ to protect individuals and small investors.
“Book-building is one of the mechanisms that the QFMA intends to work with as part of mechanisms for evaluating companies wishing to make public offerings of their shares to investors,” the regulator said.
The book-building is the process by which the offering advisor submits an evaluation to the company wishing to make an IPO to a group of qualified investors (including but not limited financial services firms, state institutions and state-owned companies).
“A portion of shares of the company wishing to make an offering will be offered to qualified investors,” QFMA said.
Then through negotiations, a value is reached that is acceptable to the parties of the process and the order book is built through subscription requests submitted by them, and accordingly the shares offering price is determined for the general investors.
Unlike the present system, where the demand could be assessed only at the time of closing of the subscription of IPO; the book-building route is dynamic as it gauges the demand as the book is built, sources said.
“The book-building is an efficient tool of price discovery. It is one of the missing blocks that the exchange needs to get into the developed market status,” an analyst with a leading global advisory firm said.
The Qatar Stock Exchange chief executive Rashid bin Ali al-Mansoori has been pitching for developed market status for the QSE since 2016, as he said the country has made several legal and regulatory initiatives.
Market sources said from a regulatory certainty and macroeconomic constructs, the QSE has necessary grounds for becoming developed market status, but more is needed to ensure “sufficient” conditions.
Another area that the QFMA is right now considering is the procedures for evaluating ‘in-kind’ shares, according to the annual report.
This procedure is in line with the requirements of the Companies Law and it evaluates the ‘in-kind’ shares of the company, whether upon incorporation, or when increasing the capital, or when converting to a public shareholding entity listed on the financial market.
These procedures include the mechanisms that the financial evaluator should follow when undertaking the evaluation.
An initiative that is under implementation process is the payment and settlement wherein it aims to provide reports on settlement processes that show net obligations and benefits on the settlement day of financial services companies as well as provide data on broker transactions and the custodian transactions, whether rejected or accepted.