A review of the financial markets in the Gulf Cooperation Council (GCC) countries.

McLaurin, James Reagan

ABSTRACT

With the advent of globalization, which necessitated economic and financial development across the globe, the notion of setting the rules and regulations that would govern ethical domestic and international dealings became a foremost priority to many nations. Be it an employment contract, an entrepreneurial venture, or a global-scale stock market transaction, clarity, integrity and transparency are constructs that have nowadays become highly delineated and sought.

The Gulf Cooperation Council (GCC) countries provide a concrete example of nations that have perceived the significance of regulating their market affairs. This can be seen in their almost-uniform call for the creation of Financial Markets in interest of further promoting privatization in a time where traditional reliance on the oil sector proved--like all things--transient.

Given the importance of regulating such Financial Markets, Kuwait, Qatar, Bahrain, and the United Arab Emirates have set-up their markets in such a way that policies be based on solid grounds. The Kuwait Stock Exchange--under the supervision of the Kuwait Investment Authority, the Doha Securities Market--in collaboration with Qatar Central Bank, the Bahrain Stock Exchange--working closely with the Bahrain Monetary Agency, and the Dubai Financial Market --in adherence to the directives set forth by the Emirates Stocks and Commodities Authority--have devised and adhered to regulations that clearly drew the line between ethical and unethical market behavior.

The fact that transparency measures based on the Transparency International's 2003 Corruption Perception Index for all four countries were quite comparable indicates that the possibility of joining forces and creating a single GCC Financial Market is not a remote or unfeasible one.

INTRODUCTION

In a time where economic and financial development have become constructs highly related to globalization and international trade, it becomes of increasing importance that government entities further incorporate guidelines that would regulate ethical domestic and international transactions. The call for such standards as simplicity and integrity on both the local and the global levels has necessitated that nations pass rules and regulations that would standardize business and political relations.

The notion of privatization has lately become a critical issue in developing countries including the Gulf Cooperation Council (GCC) countries in interest of keeping up with the fast pace of the global economy. Privatization in many instances is perceived as a convenient means to limit reliance on the oil sector for the survival of the GCC countries.

The advocacy and importance of transparency and ethical trade, which in essence are fundamental principles to which most market dealers need to adhere, serve as a basis upon which legal entities may set their regulatory rules and decisions.

This paper presents a cross comparison of four GCC Financial Markets--Kuwait, Qatar, Bahrain, and United Arab Emirates, namely Dubai. A brief recount of the Judicial System prevalent in each of the four countries is presented and an introduction to the regulating Investment Authority --or its equivalent--in each country.

Further, the concept of privatization shall be explored as relevant, followed by an introduction to the Financial Market and its regulations as applicable across the countries in question. The fundamental notions of transparency and integrity shall be presented accordingly, followed by a comparison of the most prominent findings and the conclusion.

STATE OF KUWAIT

State of Kuwait Judicial System

In Kuwait, the legal system "is an amalgam of British common law, French civil law, Islamic legal principles, and Egyptian law" (Pogar--Kuwait: Judiciary, 2004). Judiciary in Kuwait consists of three levels, the first of which is the Courts of First Instance that "handle civil, commercial, personal status and penal matters separately" on which sanctions on wrongdoings "by less than three years of imprisonment or fines of less than 250 Kuwaiti dinars cannot be appealed to a higher level court [whereas] commercial and civil judgments involving fines less than 1000 dinars are final." Subsequent to that come the Courts of Appeal, which serve "as both the intermediate and final court" (Pogar--Kuwait: Judiciary, 2004). Then, at the final level comes the Court of Cassation serving as the final court of appeal.

Kuwait Investment Authority (KIA)

The concept of an Investment Authority in Kuwait originated from the foundation of key institutions. The major transition into the investment and financial sectors of the country occurred following the discovery of oil in the fifties. As a result of the increasing financial surpluses gained from oil revenues, the country created the General Reserve in the year 1960 with an objective to organize public finances.

With future outlooks in the 1970s into ways to guide the country towards prosperity and growth, "the State [of Kuwait] issued Law 106/1976 to form the Future Generations Fund which consisted of 50% of the General Reserve at that time, 10% of the annual budgetary revenues of the State, plus the profit of these assets" (Kuwait Investment Authority, 1996). To act as a source of income in anticipation of such critical events as the depression of oil markets, crude oil dry up, or war, the Future Generations Fund was established and its assets were and continue to be "invested in the stocks of reputed international companies, first grade foreign bonds, deposits in major currencies, and various economic projects, under the supervision of economic & financial experts in Kuwait & prime international financial institutions" (Kuwait Investment Authority, 1996). Generally, Kuwait seems to follow a rather "conservative investment policy" (Background Note: Kuwait, 2003).

The mounting amount of allocated investment funds has led to the development of the Kuwait Investment Authority (KIA) in interest of "improving the quality of investment operations and processes [consequently,] Law 47/1982 was issued establishing KIA as an independent legal entity operating under the auspices of the Ministry of Finance" (Kuwait Investment Authority, 1996).

As a substitute to the Ministry of Finance, "KIA is authorized to develop and manage the General Reserve, and the assets of the Future Generations Fund as well as any other funds entrusted to it by the Minister of Finance" (Kuwait Investment Authority, 1996). KIA aims to continue with the investment of the Future Generations Fund assets and the General Reserve Funds in the usual most appropriate manner where the generated income is eventually "to be used to implement state economic and social policies for local development on the one hand and regional and international cooperation on the other" (Kuwait Investment Authority, 1996).

Privatization

The aspect of privatization is greatly emphasized in the ongoing practices of the KIA in its continuous attempts at developing "national financial systems" through "training nationals in various investment fields" (Kuwait Investment Authority, 1996). This strategy looks at opening the door for continuing privatization programs that would encourage owning shares in local companies thereby promoting involvement and development in economic activities.

KIA plays a crucial role in involving the private sector in the "financing of the establishment of companies and projects, which have feasible economic returns" such as "Gulf Cable, Electrical Industry Company, Mobile Telephone Systems Company, Touristic Enterprises Company, [and] Kuwait Hotels Company" (Kuwait Investment Authority, 1996). Among the most notable financial companies in which KIA holds shares are "Bank of Kuwait and Middle East, Kuwait Investment Company, Kuwait Financial House, The Financial Group, [and] Gulf Insurance Company" (Kuwait Investment Authority, 1996).

Kuwait Stock Exchange: An Introduction

Established in 1977, the Kuwait Stock Exchange (KSE) was the "twelfth largest stock exchange" prior to the Iraqi invasion in 1990 because of which it had to halt its operations and reopen in 1992 (Kuwait Information Office--USA, 2002). However, it "recovered strongly after it adopted an automated trading system in 1995 [and became] the most active market in the Arab World" with "77 listed companies in 2002" (Kuwait Information Office--USA, 2002; Pogar--Kuwait: Financial Management, 2004). The "Difficult Debts Law" enacted in 1993 also assisted the successful return by providing "sufficient debt relief and a mechanism by which large Kuwaiti investors could recover from losses incurred during the Iraqi invasion, and from losses dating back to the Souk Al-Manakh crisis," the unofficial stock market which collapsed in 1982 (Kuwait Information Office--USA, 2002).

In 2000, Law No 20/2000--Foreign Participation in Kuwaiti Companies Listed on the Kuwait Stock Exchange--was enacted to permit "overseas investors to participate in the Kuwait Stock Exchange through ownership of shares of Kuwaiti shareholding companies"(AsiaLaw Profiles 2002: Middle East- Kuwait, 2001). This law was passed to further regulate share cross-trading amongst the Kuwait Stock Exchange and its neighboring Bahraini, Egyptian, and Lebanese Stock Markets which took place in 1998. In May 1999, Kuwait and Jordan "signed a memorandum of understanding that permitted cross-listing on their respective Stock Exchanges" (Pogar--Kuwait: Financial Management, 2004). "Trading on the bourse had been restricted to Kuwaitis and nationals of the GCC states. Foreigners could own Kuwaiti stocks only through mutual funds" (Kuwait Information Office--USA, 2002).

Kuwait Stock Exchange: Foremost Regulations

In terms of rules and regulations governing the Kuwait Stock Exchange, it is important to note that the Kuwait Stock Exchange Committee is the authorized body that sets forth all such regulations.

The most important directives that the Committee decreed in order to allow companies to trade their shares on the Stock Market are as follows:

1. the company capital shall not be less than two million Kuwaiti dinars and the reserves and forwarded profits shall not be less than 3 million Kuwaiti dinars;

2. the company should have realized a net profit not less than 5% of its paid up capital from its main activity during the last two years;

3. the company capital should be distributed among a sufficient number of shareholders according to the capital amount;

4. the company should submit a document for the approval of the relevant government authority if such company was carrying out an activity of special nature;

5. if the registration application was filed by a company which increased its capital effectively, there should have elapsed at least one complete fiscal year as of that increase before submission of the registration application;

6. the registration application should be enclosed with a preliminary pamphlet for identification of the company, its history and financial situation, given that the pamphlet is prepared according to the form approved by the Stock Exchange and the company auditor;

7. the company should have fulfilled the time clause for the circulation of its stocks in the Exchange according to the provisions of law subject to which it was incorporated;

8. the Exchange Committee may exclude certain companies from some of the foregoing rules given that the Committee thinks that their overall situation justifies exemption;

9. the Committee reserves the right to reject any of the Registration Applications (Kuwait Stock Exchange, 2004).

Transparency & Integrity

In August 1996, the Kuwaiti Government passed Law 25 in which it "require[d] full transparency and accountability in all government contracts in excess of one hundred thousand dinars (approximately $300,000) in value... [as well as] a stipulation by the contracting party as to whether it has paid or will pay a commission of any kind to a disclosed or concealed intermediary." Furthermore, this "law imposes an obligation on both the payer and the payee to disclose in a separate declaration, the amount of the commission, the type of currency, and the place and manner of the commission." Failure to do so will result in "sanctions for non-disclosure or misinformation [which] range from civil and criminal penalties equal to the value of the payment to imprisonment" (Ali & Partners, 2004).

To further elaborate on the issue of integrity, a survey that was conducted by "the Higher Committee for Economic Development and Reform ... in conjunction with the World Bank that probed public attitudes about government decision-making, including issues of governance, corruption, privatization and public sector reform" showed that "on [the] Transparency International's 2003 Corruption Perception Index, Kuwait ranked fourth among Arab countries and 35th out of 133 countries worldwide with a score of 5.3 on a scale from 1 to 10, where 10 represents no corruption" (Pogar--Kuwait: Financial Management, 2004).

STATE OF QATAR

State of Qatar Judicial System The legal system in Qatar focuses on following Shari'a principles "although it has been influenced by the Egyptian legal traditions." While the judicial structure is composed of Shari'a and Civil Courts, "those two systems are unified in a single structure" and judiciary in Qatar is made up of three levels (Pogar--Qatar: Judiciary, 2004). The first of which are the Courts of Justice and the Shari'a Courts of First Instance where the former "are empowered to hear civil, criminal, and commercial matters" and the latter are dedicated to dealing with "cases involving personal status" (Pogar--Qatar: Judiciary, 2004). Depending on the nature of the case, "decisions rendered in these courts may be appealed" either to the Appeal Court of Justice or the Shari'a Court of Appeal. The third level in the judicial system, the decision of which is deemed final, is the Court of Cassation that includes "one chamber for Shari'a cases and one to serve as the appellate court for Court of Justice appeals" (Pogar--Qatar: Judiciary, 2004).

Central Bank & Doha Securities Market

Qatar does not have an Investment Authority that would regulate the financial procedures in the country from a single body but rather encompasses two key players, Qatar Central Bank (QCB) and Doha Securities Market (DSM) that take hold of these responsibilities.

Originally founded in 1973 as the Qatari Monetary Authority under Law No. 14, the entity's title was changed to Qatar Central Bank in 1993 (Pogar--Qatar: Financial Management, 2004). It is mainly responsible for "issuing currency and act[ing] as the bank of the government and the bank of banks in addition to its main task of managing the monetary policy of the State" (Ministry of Foreign Affairs, 2001). As for the standards, the "QCB requires that all banks in the country meet the standards of the Bank of International Settlements" (Pogar--Qatar: Financial Management, 2004).

Later on in 1997, the Doha Securities Market was established as an independent government body that aims at "consolidating the financial and economic structure of the country" (Doha Securities Market, 2004). As of March 2004, the market had a listing of 30 companies.

Privatization

Arising from the fact that the government of Qatar viewed privatization as an essential basis that would "reduce pressure on the budget," the process of privatization came into effect in 1998. It was during that same year that its "first major public sale of government assets ... [involved selling] 45% of its shares in the state monopoly, the Qatar Public Telecommunications Corporation (Q-Tel)" (Pogar--Qatar: Financial Management, 2004). Further reinforcement to privatization became evident during 2002 from their set "targets for divestment ... in the steel, fertilizers, and petrochemical industries" in such fully state-owned companies as Qatar Steel Company (QASCO) or partially state-owned companies as Qatar Fertilizers Company (QAFCO) and Qatar Petrochemical Company (QAPCO) (Pogar--Qatar: Financial Management, 2004).

Doha Securities Market: An Introduction

Law 13/ 2000 was enacted in October 2000 to confer "upon foreign investors privileges, benefits and protection." This law allows "foreign investors to invest in 'all national economy sectors' except banking, insurance, commercial agencies and trading in real estate" (The Law Offices of Sultan M. Al Abdulla Advocates & Legal Consultants, 2001).

In the Doha Securities Market, "GCC nationals can own up to 25% of the shares of any traded company, and other foreigners can only participate in the market by means of local mutual funds"(Pogar--Qatar: Financial Management, 2004). Moreover, "The Council of Ministers approved on 29 May 2002 the Law of Investment Funds draft allowing non-Qataris to invest in all listed companies"(Ministry of Foreign Affairs, 2001). Recently, as reported by Gulf News "Qatar has issued regulations for the establishment of mutual funds that will allow foreigners to invest in the Doha Securities Market for the first time ... Only banks and securities firms with three years or more of experience in the local market will be able to set up mutual funds" (Cooper, 2004).

Doha Securities Market: Foremost Regulations

Under article 3 of section 2--Market Formation--of Unit 1, the Securities Market Committee is the authorized body that sets forth the regulations governing company share listing, stock trade transactions and stock ownership requirements. The Committee, under article 37 of section 1--Company Registration & Listing--of Unit 4, decreed that the capital of any company wishing to be listed on the Doha Securities Market shall not be less than 10 million Qatari Riyals. Other articles delineated the most prominent regulations pertinent to company registration requirements, which include, but are not limited to, the following:

1. the number of shareholders shall not be less than one hundred shareholders;

2. the company capital should be distributed among the shareholders so that no shareholder owns shares in excess of the maximum allowed capital value;

3. excluding new-founded companies, all companies seeking registration shall submit their annual reports approved by a certified auditor and shall commit to publishing these reports in two daily, local newspapers, one of which is English;

4. the company shall submit a copy of the Commercial Trade License along with the Application Form (Doha Securities Market: Internal Regulations; Trans.).

Transparency & Integrity

Upon the inauguration of the Doha Securities Market, Hussain Al-Abdullah--Director--advised that the "key success factors of the [Doha Securities Market] will be integrity, liquidity, efficiency, and transparency" (Stock Market Director Addresses ABC Qatar, 1997).

To further actualize his statement, the Market Authorities, under article 51 of Section 2--Listed Company Obligations--of Unit 4, decreed that, under the discretion of the Doha Securities Market, all listed companies are required to publish quarterly and monthly summary reports in two daily, local newspapers in order to convey the company's current financial status to the public to promote ethical trading. In addition, article 52 of the same section further aims at reinforcing transparency as it requires that companies provide the Market Authorities with their publications for verification purposes in interest of inhibiting fraudulent misrepresentation (Doha Securities Market: Internal Regulations; Trans.).

The elimination of corruption and the advocacy of transparency can further be noted in the fact that Qatar ranked third in the Arab World on the Transparency International's Corruption Perception Index with a worldwide score of 5.6 (Transparency International's Corruption Perception Index, 2003).

KINGDOM OF BAHRAIN

Kingdom of Bahrain Judicial System

The Bahraini legal system is "a mixed system based on British Common Law models and Sunni and Shi'a Shari'a traditions [; however,] the Constitution declares that Shari'a is [the] principal source of law" (Pogar--Bahrain: Judiciary, 2004).

The Judiciary in Bahrain is the authorized body "empowered to review the constitutionality of laws." Essentially, the judicial system is divided into two main branches--the Civil Law Courts and the Shari'a Law Courts. The Civil Law Courts reserve the authority to resolve all "commercial, civil, and criminal cases, and all cases involving disputes related to the personal status of non-Muslims." The Civil Law Courts are structured in a "three-tier system." The preliminary level, which has jurisdiction over civil and commercial matters, is the "Courts of Minor Causes, also called the Lower Courts and the Court of Execution. The Middle Courts have jurisdiction over criminal matters." The second judiciary level accounts for the "High Court of Appeal, or the Senior Civil Court." All cases brought forward before the High Court of Appeal are "presided over by a minimum of two judges." The "Supreme Court of Appeal," also known as the Court of Cassation, serves as the "final court of appeal" for all lawsuits involving civil, commercial, and criminal matters. The Shari'a Courts, on the other hand, are composed of "two levels: the Senior Shari'a Court and the High Shari'a Court of Appeal" (Pogar--Bahrain: Judiciary, 2004).

The Economic Development Board of Bahrain

The Economic Development Board (EBD) of Bahrain is "an autonomous semi-private agency [that] was established by Amiri Decree in April 2000, and is chaired by His Highness the Crown Prince Sheikh Salman bin Hamad Al-Khalifa." "The Board was designed to ensure the active participation of the private sector in Bahrain's economic development" (Economic Development Board, 2004).

In essence, the EDB devises and monitors the economic development strategy of Bahrain. This semi-private agency aspires to attract Foreign Direct Investment to Bahrain and has "identified six main economic clusters which capitalize on Bahrain's competitive advantages and present significant investment opportunities," such as Information & Communications Technology, Tourism, Business Services, and Healthcare services (Economic Development Board, 2004).

Moreover, The EDB strives to create "the right climate to attract more foreign investment to Bahrain in order to ensure sustainable GDP growth and to create increased employment opportunities" and contends with the following functions, among others (Economic Development Board, 2004):

* To promote investment, particularly in the key economic clusters

The EDB plays a central role in attending and hosting seminars, investment forums, conferences, and exhibitions that serve the purpose of heightening the public's awareness of what Bahrain can offer potential investors. The EDB also targets individual companies and approaches them directly to discuss investment opportunities

* To assist and streamline the registration process for investors and businesses setting up in Bahrain

The EDB is authorized to review any investment opportunity and consequently propose more suitable offers to the Board of Directors with the aim of reducing bureaucracy and expediting decision-making.

Privatization

"Privatization of some state-owned industries and economic diversification with the aim of providing more jobs for Bahraini nationals" is considered one of the main priorities of the EDB (Pogar--Bahrain: Financial Management, 2004). In response to such a necessity, by spring 2001, "utilities, banks, financial services, and telecommunications have started to come under the control of the private sector" (Nationmaster.com, 2003).

Bahrain Stock Exchange: An Introduction

In 1957, the National Bank of Bahrain became the first public shareholding company in Bahrain. During the late 1970s and early 1980s, Bahrain realized there was a growing need for a regulated stock market; therefore, the Government, in collaboration with the International Finance Corporation "prepared a feasibility study highlighting the importance of establishing an official stock market in Bahrain." This study resulted in establishing the Bahrain Stock Exchange (BSE), which commenced operations in June 1989, under Amiri Decree No. 4 (Bahrain Stock Exchange, 2004).

In addition to serving as a regular stock exchange, the BSE acts as a securities regulator and undertakes supervision of the capital market. The BSE has additionally implemented agreements with similar neighboring agencies, such as the Muscat Securities Market in 1995, the Amman Financial Market in 1996, the Egypt Capital Market Authority in 1997,and the Kuwait Stock Exchange in 1998 (Pogar--Bahrain: Financial Management, 2004).

By the end of 2002, there were 40 domestic companies listed on the Bahrain Stock Exchange. The Commerce & Industry Ministry was responsible for regulating and supervising the operations of the stock market up to 2002. Subsequent to that, certain decrees were issued, the aim of which was to increase the role of the Bahrain Monetary Agency (BMA) in the financial sector. The BSE consequently became "governed by its own rules and regulations" under the review and approval of the BMA (Bahrain Stock Exchange, 2004).

Transparency & Integrity

Bahrain has been renowned for its "solid international reputation for low occurrence of corruption. It ranks in the top quarter of all countries worldwide on Transparency International's Corruption Perception Index, with a CPI of 6.1 on a scale from 1 to 10 ..." which ranks it second in the Arab World after Oman (Pogar--Bahrain: Financial Management, 2004).

Additionally, the Economic Development Board contributes to ensuring that the right kind of information is provided to all potential investors to facilitate their decision-making. In general, "Bahrain has a reasonably strong record of preventing and prosecuting corruption" (Pogar--Bahrain: Financial Management, 2004).

THE UNITED ARAB EMIRATES

The United Arab Emirates Judicial System

"The Constitution, first written in 1971 and reaffirmed several times since then, declares Shari'a to be a principle source for law in the United Arab Emirates." Other sources that might influence the UAE legal system include Common Law and Egyptian legal traditions (Pogar--UAE: Judiciary, 2004).

Civil matters are usually dealt with by the "federal judiciary structure of UAE, although two emirates, Dubai and Ras Al Khaimah, remain outside of this structure." The first-level or so-called "lowest courts in the system are the Courts of First Instance" and are located in each of the emirates. Beyond the Courts of First Instance, the UAE judiciary system houses a "two-tiered appellate system." This system encompasses the "Federal Appeal Court, located in each of the emirates, and the highest court in the structure, the Court of Cassation." Separate criminal and Shari'a courts are also part of the UAE judiciary system. "While the criminal courts have a separate appeal system, cases heard in the Shari'a Courts of First Instance may be appealed to the Civil Courts of Appeal and the Court of Cassation in Abu Dhabi" (Pogar--UAE: Judiciary, 2004).

Dubai Development & Investment Authority

The Dubai Development and Investment Authority (DDIA) is a "Government Authority entrusted with catalyzing the growth and development of Dubai's economy by attracting corporate and private investors to the UAE and by facilitating the growth of leading local businesses and encouraging local entrepreneurs" (Dubai Development & Investment Authority, 2004).

In essence, the areas of activity on which the DDIA focuses include, but are not limited to, the following:

* Matching Investors with investment opportunities: The DDIA is keen on attracting and encouraging local investment through founding and supporting sizeable projects in Dubai. Most projects "enjoy the risk mitigation that arises from having Government backing and a well defined government role."

* Multinational Corporations: The DDIA shows particular interest in global multinationals and aims to facilitate their set-ups in Dubai through "comprehensive value-added offering[s]."

* The DDIA is a main provider of Government and Convenience services to major investors and corporations with the aim of facilitating the establishment of operations, easing legal clearances, and delivering world-class support services (Dubai Development & Investment Authority, 2004).

The Dubai Development & Investment Authority mainly strives to promote constructs highly favored by the International Monetary Fund, the World Trade Organization, and the World Bank, such as openness, diversity, and international accounting standards. This Regulatory Governmental Authority, according to Saeed Al Muntafiq--Director General--has as a mission, among other missions, diversifying Dubai's economy so that "70% of its GDP [comes] from the service sector." Besides DDIA's "macro strategy role," it is also concerned with the development of several projects of high caliber and complexity. Citing the Dubai Healthcare City as an example, S. Al Muntafiq indicated that such multi-million projects would add value to the UAE generally and Dubai specifically (Cooper, 2003).

S. Al Muntafiq asserts that "the DDIA is not a Free Zone," and thereby creates no "conflict of interest with other free zones." He adds that the DDIA, which aims at naming Dubai a "global gateway," is "part of the Dubai Government and can issue [its own] regulations and make laws" (Cooper, 2003).

Dubai International Financial Center

The instigation of the Dubai International Financial Center (DIFC), one of the milestones delivered by the DDIA and Dubai Government, aims at facilitating the transformation of Dubai into a key financial hub since the Center serves as a liaising point accounting for the trade time gap imposed by other international financial centers. As advised by Naser Al-Nabulsi, DIFC's Chief Executive Officer, the DIFC houses 200 of the most prominent financial institutions in the world and is projected not only to enhance the economic and financial well-being of the UAE, but also of the wider region, including the GCC (Interview, 2003).

Privatization

The UAE Federal Government encourages diversification and privatization of the economy. In a critical period where National Income resources had to be redefined as a result of projected oil and petroleum deficits, Dubai Government, under the able guidance of His Highness Sheikh Mohammed Bin Rashid Al-Maktoum, set the path that would stimulate privatization and local stock trading. Amongst the initial implementation stages of His Highness' vision was the creation of the Dubai Financial Market.

Dubai Financial Market: An Introduction

The Dubai Financial Market (DFM), an internationally-recognized market espoused by the DDIA and Dubai Government, formally commenced operations in June 2000. His Highness Maktoum Bin Rashid Al-Maktoum, Ruler of Dubai, "after perusal of the Federal Law No. 4 of 2000 concerning the establishment of the Emirates Authority and Market for Securities and Commodities ... promulgate[d] ... The Decree for the Establishment of the Dubai Financial Market for the year 2000"--Decree Number 14 (Dubai Financial Market, 2004a). The Emirates Securities and Commodities Authority, which was established early during the year 2000, is the regulatory and licensing body responsible for instituting chief directives in terms of the Dubai Financial Market listed companies and honest & transparent trade regulations.

Currently, the Dubai Financial Market is comprised of 25 listed companies including Emaar Properties, National Central Cooling Company, Emirates Bank International, Shua'a Capital, the National Bank of Dubai, and the Emirates Equity Fund.

Dubai Financial Market: Foremost Regulations

The Dubai Financial Market essentially bases its rules and regulations on the policies espoused by the United Arab Emirates Stocks and Commodities Authority (ESCA). Where the DFM is concerned, the ESCA serves as the legal body approving the "trading of securities issued by public shareholding companies, bonds issued by the Federal Government or any of the Local Governments and public institutions in the country, investment units issued by local investment funds and any other financial instruments, local or foreign" (Emirates Freezones.com, 2004).

The ESCA requires that the following conditions be met in order for a joint stock company to be decreed a licensed listed company:

A. No joint stock company incorporated in the State shall apply to the Authority or the Board for listing of Securities on the Market unless:

1. a period of 2 years has passed subsequent to the incorporation of the company and two audited financial reports by an auditor registered in the practicing auditor's schedule and authorized to audit the accounts of joint stock companies in the State are published;

2. the paid up capital of the company is not less than 50% of the shareholders funds which shall not be less than Dhs. 20 Million;

3. the rights of shareholders in relation to each type of share issued by the company are equal;

4. the net assets of the company are not less than 20% of its paid up capital; or

5. the company must have made net profits distributable to shareholders averaging not less than 5% of the paid up capital during the two years prior to the submission of the listing application;

6. ordinary general assemblies of the company have been held at least once a year; and

7. the company has published the financial reports of its business in a daily publication in the State prior to its Securities being traded on the Financial Market.

B. All Companies must comply with the conditions set down by the Authority from time to time (United Arab Emirates: Stocks and Commodities Authority, 2000).

Internal Regulations Governing the DFM

In addition to adopting the ESCA rules and regulations where most issues pertinent to the DFM are concerned, the DFM Authorities have also set forward their own internal regulations to complement the ESCA rules. For instance, the DFM has allowed for disciplinary regulations--upon the discretion of the brokerage's general manager--that would be applicable in instances where a broker might commit one or more of the following faults:

1. a broker's failure to settle all his/her transactions with the "clearance house" or his/her clients.

2. a broker's failure to comply with any of the DFM regulations.

3. a broker's fraudulent misrepresentation of material facts in the form of forged documents and reports, regardless of whether or not clients had detrimental reliance on the misrepresented material (Dubai Stock Market, Trans.).

Furthermore, the DFM has explicitly imposed regulations where defamatory statements and expressions are concerned. The regulations are as follows:

1. a broker is prohibited from defaming another broker's reputation or accusing the latter of negligence.

2. all brokers are obliged to seek the approval of the DFM Authorities on the content of the brokerage's advertising campaigns to ensure that they do not impose harm on or lead to defaming other brokerage firms. (Dubai Stock Market).

Transparency & Integrity

Given that the Dubai Financial Market adheres to the regulations imposed by the Emirates Securities & Commodities Authority, it is inherent that the former pay strict attention to the notion of transparency, which calls for ensuring that integrity and accuracy of dealings is maintained at all times. The ESCA sets specific rules that ascertain that investors are protected at all times, and that guarantee the reliability of the "interaction between supply and demand which allows for the natural setting of prices" (Dubai Financial Market, 2004b; Appendix A).

A recent case published in the 9, 139th issue of Al-Khaleej Newspaper--dated May 27th, 2004 --recounted the initiative taken by the Dubai Financial Market Authorities at canceling stock trade transactions for Dubai Islamic Bank for the latter's failure to adhere to reporting and transparency regulations. This initiative was the first of its kind in the local stock market and was enforced as a response to Dubai Islamic Bank's failure to notify the DFM Authorities of the increase in its capital (Al-Khaleej Al-Iqtisadi, 2004).

In terms of The Transparency International's Corruption Perception Index in 2003, the UAE ranked fifth among Arab countries and 37th out of 133 countries Worldwide with a score of 5.2 (Appendix B).

CROSS COMPARISON OF THE FOUR GCC MARKETS

In an attempt to closely analyze the markets previously discussed, Table (1) below presents a comparison among these markets--Kuwait, Qatar, Bahrain, and the United Arab Emirates--in terms of their legal systems and financial market positions.

It is evident that the countries in question display shared principles and undergo, to a certain extent, similar functions. Specifically, all four countries' judiciary systems include three levels and apply Shari'a law in cases involving personal status. Moreover, each country appears to have gained a certain amount of financial market experience, although fairly limited, given the relative novelty of its operations. Additionally, the concept of privatization has been greatly emphasized and applied in all four countries.

[ILLUSTRATION OMITTED]

Diagram (1) above further asserts the similarity of concerns and position of each of the countries under consideration as per their scores on the CPI 2003, which describes "the degree to which corruption is perceived to exist among public officials and politicians ... in line with the misuse of public power for private benefit, with a focus, for example, on bribe-taking by public officials in public procurement" (Transparency International's Corruption Perception Index, 2003).

In a time characterized by globalization and openness to trade, it becomes imperative to combine efforts in the GCC region in order to effectively respond to the challenging business environment. In 2002, Dr. Ghanem Al Hamadi, director of the Doha Securities Market, "proposed the creation of a single GCC stock market to attract capital, activate growth and support a drive for economic integration among members." He further explained that the "creation of a unified GCC bourse capable of attracting funds on the local, regional and international levels should now be a priority given the fact that most GCC countries have small stock markets which make them less competitive" (Kawash, 2002). Moreover, Dr. Al Hamadi mentioned that the main objectives of this proposition should include: "boosting the competitiveness of the GCC markets in the field of attracting capital from Gulf and other countries, increasing liquidity in the markets, upgrading accuracy and transparency, and diversification of investment instruments" (Kawash, 2002).

CONCLUSION

In keeping with the aforementioned facts and details, it becomes indispensable that all nations and their citizens attest that rules and regulatory policies are what contribute to the progression of civilizations. Be it on a small domestic scale or a global scale, the effect regulations have on our daily lives cannot be overlooked.

This research document has briefly looked into the judicial systems of four main GCC countries--Kuwait, Qatar, Bahrain, and the United Arab Emirates. As noted, all four countries rely mainly on Shari'a Law as a basis upon which the local legal system is built. In addition to the national judicial system, these countries have set forth policies and procedures that regulate domestic and foreign trade. A critical area where such policies and regulations are made evident is the Financial Market or Stock Exchange housed by each of the individual countries.

Despite their relative short operational time-span, the Kuwait Stock Exchange, the Qatar Securities Market, the Bahrain Stock Exchange, and the Dubai Financial Market have brought upon their respective countries the actualization of the notion of privatization while adhering to the integral constructs of clarity and transparency. These markets--in collaboration with and under the supervision of their respective Investment Authority or its equivalent--have added value to investments in the region. This can be seen in the all-time record high achieved at the Dubai Financial Market at the closing of Trade on June 13th, 2004. The DFM realized an overall trade volume in excess of AED 837 million. This "surge in the UAE's market capitalization maintained its position as the third biggest stock exchange in the Arab world after those of Saudi Arabia and Kuwait" (Investor stampede takes UAE shares to record, 2004).

Given the incessant attempts at diversification, privatization, and continued growth brought forward by the aforementioned countries, the concept of joining forces in one major GCC Stock Market seems quite attractive to many investors and advisors. The value allotted to limiting economic and trade barriers across these countries in interest of keeping up with the fast pace of globalization, the importance of creating a more competitive, uniform Stock Market, and the call for further transparent deals serve as major elements further promoting the feasibility of a GCC Stock Market. The vision that "the Arab world must utilize its common interests and act as a concerted whole in order to have influence on the trade policies that will reach into the heart of their individual economies" might not be as remote as initially perceived (Al-Habtoor, 1997).

In light of the dominant similarities prevalent amongst the four Financial Markets, the notion of an integrated GCC Market further proves a feasible establishment. The fact that the region's four markets tend to rely on relatively comparative regulations, such as capital and liquidity requirements and registration procedures, among others, indicates that joining forces in one market shall not only increase trade volume, but shall also allow the region further international recognition as a dominant body. Moreover, creating a sole GCC Market would imply a boost in capital inflow into the region from increased foreign trade and would lead to more solid domestic investment grounds.

Inherent in the inauguration of the common GCC Financial Market, which we highly recommend, is the process of setting the regulations that would guide transparent trade in that Market. These regulations need not be adopted from one specific market, but rather decreed by a central authoritative regulatory body within this common Market in reference to the individual markets. Where transparency is concerned, the common GCC Market might set the Sultanate of Oman Market as a model to emulate since it ranked first within the Gulf Region Markets and 26th on an international scale (Appendix B).

The fact that the United Arab Emirates--Dubai specifically--has adopted international standards and regulations where several business--related aspects are concerned, and given the relative openness of the business society and the local community, as well as its constant aim at positioning itself as a major economic, financial, and touristic hub, it might be advisable that the initiative of a common GCC Market be brought into life within Dubai itself.

APPENDIX A: TRANSPARENCY REGULATIONS

THE SECURITIES AND COMMODITIES AUTHORITY CABINET RESOLUTION NO. 3/2000 CONCERNING THE REGULATION FOR DISCLOSURE AND TRANSPARENCY

The Chairman of the Securities and Commodities Authority Board of Directors,

After perusal of Federal Law No 4/2000 concerning the Emirates Authority and Market for Securities and Commodities, and

Cabinet Resolution No. 193/18/2000 dated March 13, 2000 concerning the formation of the Securities and Commodities Authority Board of Directors, and

After consultation and coordination with the parties concerned with the establishment of the Markets in the State, and

Based on the Authority's Board of Directors Resolution at its Meeting on October 29, 2000.

It was resolved to approve the following regulation relating to disclosure and transparency:

Definitions

Article (1)

The words and expressions hereunder shall have the meaning set forth against each of them unless the context otherwise implies:

Law Federal Law No. 4/2000 concerning the
 Emirates Authority and Market for
 Securities and Commodities
State The United Arab Emirates
Authority The Securities and Commodities Authority
Board The Board of Directors of the Authority
Market The Securities and Commodities Market
 Licensed in the State by the Authority
Broker The corporate body authorized under the
 provisions of the law to conduct brokerage
 business in the Market.
Broker's Representative: The natural person assigned by the broker
 to conduct brokerage business relating to
 securities and commodities on its behalf.

Market Participants Brokers operating in the market and joint
 stock companies and other parties whose
 securities are listed on the Market.
Parent Company The company that establishes another
 company and supervises its activities.
Subsidiary: The company that is owned at least one
 half by another company.
Associated Company: The company that relates to the same group
 as another company.
Affiliated Company: The company that is related to another
 company through a cooperation agreement.

Article (2)

To ensure the integrity and accuracy of dealings and the interaction between supply and demand which allows for the natural setting of prices, and the protection of investors by enforcing the principles of fair and proper dealings, the following shall be complied with as they relate to disclosure and transparency:

First: General Provisions

Article (3)

Every natural person whose shareholding, or whose shareholding along with that of his minor children, has reached 5% or more of a listed company's shares, shall notify the Market of such holdings immediately.

Article (4)

Every juridical person whose shareholding has reached 5% or more of a listed company's shares, shall notify the Market of such holdings immediately.

Article (5)

Every natural person whose shareholding, or whose shareholding along with that of his minor children, and every juridical person whose shareholding has reached 10% or more of a listed company's parent, subsidiary, associated or affiliated company, shall notify the Market of such holdings immediately.

Article (6)

Any natural or juridical person whose holding reaches 10% or more of a listed company's shares, and who wishes to purchase 20% or more of that company's shares, shall notify the Market before he submits a purchase order for execution on the trading floor. The Market's Director General, after consultation with the Authority, may forbid the deal if he assesses that it may hurt the national economy.

Article (7)

Any bank or financial institution which conducts banking operations shall obtain the Central Bank's approval before it executes any deal that will allow it to own 5% or more of a listed company's shares.

Second: Disclosures Relating to the Authority

Article (8)

The Authority shall ensure that disclosure and transparency is maintained and is organized in the manner indicated in the law and the regulations in implementation thereof.

Article (9)

The Board may inspect market participants on a regular basis, or based on the request of a concerned party, to verify the extent of compliance with the law, or the regulations in implementation thereof, based on the regulations which it establishes in this regard.

Article (10)

The Authority may not practice commercial business, have an interest in any project, or own or issue any securities.

Article (11)

Each member of the Authority's Board of Directors shall, once he takes up his functions, provide a written declaration regarding the securities owned by him or his spouse and minor children, and regarding their contribution with any broker. He shall also provide a written declaration regarding any change that may occur thereto, within one week from the date he learns of such change.

Article (12)

A member's membership in the Board is revoked if he is sentenced for criminal conduct, a crime affecting his honor or trustworthiness, or if he is declared bankrupt.

Article (13)

The board may, by a majority of its attending members, suspend dealing in the Market, or in the securities of any company for a temporary period, or to stop dealing in any securities in the event of extraordinary circumstances or any incident that may affect the proper functioning and organization of work in that Market.

The board may also decide, by a majority of its members, to freeze, suspend or reactivate any regulation relating to the market or any of its operations.

Article (14)

The board may suspend the listing of any security in the Market in several cases including:

A. If the Company fails to comply with one of the listing conditions.

B. If the Company's net shareholders equity falls below 50% of its capital.

C. If the Market value of the security decreases to less than 60% of its par value or increases unexpectedly.

D. If the extraordinary general meeting passes a resolution to reduce the company's capital.

E. If the Company does not issue annual, semi-annual or quarterly reports about its activities.

F. If the extraordinary general meeting makes a decision to sell most of the Company's assets.

Article (15)

The Authority may cancel the listing of any security on the Market in any of the following cases:

1. If a decision has been made to dissolve or liquidate the company.

2. If listing remains suspended for six months or more.

3. If the main activities of the Company change significantly

4. If the Company ceases to carry out its activities.

5. If the company merges with another company, or companies, which causes its original identity to be terminated.

Article (16)

The board may require any person, natural or juridical, who has activities related to securities, to disclose his activities in public or private, and submit any data relating to his activities.

The board may also, in order to perform its duties, order any investigation which it deems necessary in accordance with the law and the regulations and decisions in implementation thereof.

Third: Market Disclosure

Article (17)

The Market shall commit to the Authority to take all necessary steps in ensuring the disclosure by listed companies of all material developments relating to such companies and providing the Authority with the reports and data it requests.

Article (18)

The Market's Board of Directors shall issue the necessary press releases that ensure the transparency of information and disclosures.

Article (19)

The Market shall disclose all matters covered under articles (3), (4), (5) and (6) of this regulation.

Article (20)

All information relating to listed securities shall be registered in the Market's records. Any dealing in securities which was not registered per the law and the regulations and decisions in implementation thereof, shall be void.

Article (21)

Markets in the State shall be electronically linked together.

Article (22)

It is forbidden for a member of the Board of Directors of a Public Joints Stock Company or a Financial Broker or a Broker Representative, to be a member of the Market's Board of Directors.

Article (23)

Each member of the Market Board of Directors, its Director General and his Deputey shall declare, in writing, once he takes up his functions, the securities owned by himself, his wife or minor children. He shall also declare his shareholding, and those of his wife or his minor children, with any broker. He shall also declare in writing any changes to the above within one week of the date on which he becomes aware of such change.

Article (24)

A Board member shall have his membership revoked if he is convicted of a felony, or a crime or offence related to honor or breach of trust, or is declared bankrupt.

Article (25)

The Market shall submit to the Authority its balance sheet, profit and loss statement and annual financial statements audited by an auditor entered in the schedule of approved auditors, within one month from the end of its financial year.

Article (26)

The Market shall provide the Authority with the following periodic reports relating to the trading activity of securities listed on it:

1. A daily report on trading activity including the type of securities traded, the price of each, the quantity traded and total deals for the day.

2. A semi-monthly and a monthly report on trading activity including trading volume, total trading value, number of executed deals and last closing price.

3. An annual report on trading activity including the quantity of traded securities, their value, number of deals and comparison with previous year, distribution of trading activity on the various sectors, the most significant events of the year, the extent of their effect on the Market, and the Board of Directors' suggested remedies to the negative consequences of such events.

Article (27)

The Market shall prepare a daily price bulletin relating to trading and including the following information:

a) Type of traded securities.

b) The trading prices at which trading was conducted

c) Closing price for each security as well as the bid and offer prices, even if no execution was done.

d) Comparison of the day's closing prices with the previous closing prices.

Fourth: Disclosure of parties and companies whose securities are listed in the Market and its administration

A) Pre-listing disclosure

Article (28)

No security may be listed in the Market without prior approval by the Authority, and no security may be traded except through one of the brokers registered in the Market.

Article (29)

The following documents and information, which would disclose the actual position of the company, shall be attached to the listing application:

A. A report from the Company's Board of Directors including the following:

1. A brief about the Company's incorporation, its main objectives, and its relationship with related companies including parent, subsidiary, associated or affiliated companies (if any).

2. The securities that the Company has previously issued and details of the securities it wishes to list.

3. The evaluation of the Board of Directors, corroborated by figures, regarding the performance and accomplishments of the Company in comparison with its plan.

4. The significant events that the Company has witnessed as of the date of its incorporation until the submission of the listing application.

5. The names of Board of Directors Members, managing executives, and securities owned by them and their first degree relatives, and issued by the company, its parent, subsidiary, associated or affiliated company (if any), and their membership on the board of directors of other public joint stock companies.

6. Names of the persons who own or whose ownership with their minor children reaches 5% of the securities issued by the Company requiring listing.

7. The contributions of non-U.A.E. nationals in the Company's capital.

B. A financial statement containing the following:

1. The company's annual report for the financial year prior to the submission of the listing application accompanied by the Company's Board of Director report and auditor's report.

2. The transitional financial statements which cover the period from the end of the financial year prior to the listing application until the end of the last quarter prior to the application date, approved by the Company auditor.

Article (30)

The Board of Directors of any listed company or company applying for listing shall acknowledge the completeness and accuracy of all information submitted to the Market and the Authority. The fact that the Authority or the Market has viewed such documents or approved them in their bulletins does not constitute an acknowledgment from them of the accuracy of the contents, or the legality of actions taken by any person which are based on them.

Article (31)

The Company whose securities have been approved by the Authority for listing on the Market shall, within ten days from its listing on the Market, announce in two daily and widely circulated newspapers, issued in Arabic, its annual and interim financial statements, and a summary of the Board of Directors' report submitted for the purpose of listing.

A) Post-listing disclosure

Article (32)

The company whose listed securities have been traded shall not change the ownership of shares in the company share register unless such change was authorized by the Market management or was conducted according to the law and the rules and regulations in implementation thereof.

Article (33)

The company whose securities have been listed in the Market shall notify the Authority and the Market Management of any material developments affecting the prices of such securities as soon as they occur such as catastrophes, fire, merger, issue of new securities, the discontinuation of a production line, voluntary liquidation, or lawsuits made by or against the company which may effect its financial position.

The Market's Board of Directors may publish any statement relating to such developments in local newspapers and other media it deems necessary.

Article (34)

The company or party issuing securities listed in the Market shall, whenever required, publish any information clarifying its position and activities to ensure proper dealing and well being of investors.

If a change occurs in a material fact included in a newspaper announcement previously published, the company or issuing party shall issue a press release reflecting the true situation after the change. The newspaper announcement shall be published at a later stage in the same newspaper or newspapers which contained the previous announcement.

Article (35)

The company or party may not issue a newspaper announcement regarding certain information if its executive management had reasonable basis to believe that revealing such information will be seriously detrimental to its interests. The company shall confirm that no trading has been or will be conducted in its shares by the company's Board of Directors' members, its executive directors or their first degree relatives, based on the information which has not been publicly disseminated, and that it will provide the Market's Director General with the information and data, and request him to consider them confidential until the termination of the reasons which caused this situation.

The Market's Director General, in coordination with the Authority, may accept such request or oblige the company to announce the information and data.

Article (36)

Companies and parties whose securities have been listed on the Market shall notify and provide the Authority and the Market with the following:

1. All information and statistics required by the Authority or the Market

2. Trading conducted in its securities outside the Market before it was recorded in the share register.

3. The number of shares owned by the company's Board of Directors within fifteen (15) days from the date of taking-up membership, as well as at the end of each financial year, and on all trades conducted by the Company's Board of Directors and executive management.

4. Details of purchase or sale of major assets which could affect the company's position.

5. Documents relating to amendments made to the company's Articles of Association, as soon as they are ratified.

6. Any other change relating to the administrative structure of the company's Board of Directors and executive management.

7. Annual, semi-annual and quarterly financial reports covering its activities, results of its operations and financial position as soon as they are issued. These reports shall be approved by the company's auditors, and shall include all information requested by the Authority and the Market from time to time.

8. Copies of all publications intended for investors as soon as they are issued.

9. The Board of Directors' decision relating to the distribution of profits to investors or the announcement of profits or losses, to obtain approval from the Market management for its publication.

10. The names of the owners of shares whose share ownership, or whose share ownership with their minor children, has reached 5% or more of the company shares, while ensuring that each time the ownership exceeds the 5% by 1%, such disclosure shall be made.

Article (37)

According to Federal Law No. 4/2000 concerning the Emirates Authority and Market for Securities and Commodities, any person may be punishable with a jail term not less than three months and not to exceed three years and/or a fine of not less than AED 100,000 (one hundred thousand dirhams) and not to exceed AED 1,000,000 (one million dirhams) if the person:

a) Submits any information or gives any information which is false and which could affect the market price of securities or the investor's decision to invest or not to invest;

b) Trades securities based on non-public information which he was able to obtain based on his position;

c) Disseminates rumors concerning purchase or sale of shares;

d) Takes advantage of non-public information which could influence the prices of securities for his personal benefit.

Any action or trade done based on the above shall be deemed null.

Article (38)

A punishment in the form of a jail term not to exceed three years and/or a fine of not less than one hundred thousand dirhams and not to exceed one million dirhams, may be imposed on the Chairman or member of a listed company's Board of Directors, its Director General, or any of its employees, if he personally, or through another person, conducts any trade in the securities of the company before disclosing to the market the buy or sell transaction, its quantities and prices, and any other information required by the Market, and before obtaining the Market's Board of Directors' approval on the transaction.

Any trade not done based on the disclosure referred to above shall be deemed null.

Article (39)

A punishment in the form of a jail term not less than three months and not to exceed three years and/or a fine of not less than one hundred thousand dirhams and not to exceed one million dirhams, may be imposed on the Chairman or member of a company's Board of Directors, or any of its employees who uses the company's insider information for the purpose of buying and selling the company's shares in the Market.

Any trade done based on the above shall be deemed null.

Article (40)

This resolution shall be published in the Gazette and enacted as of the date of publication.

Fahem Bin Sultan Al Qassimi

Chairman of the Securities and Commodities Authority

Appendix B: CPI 2003
Transparency International Corruption Perceptions Index 2003

Country Country CPI 2003 Surveys used
 rank score

 1 Finland 9.7 8
 2 Iceland 9.6 7
 3 Denmark 9.5 9
 4 New Zealand 9.5 8
 5 Singapore 9.4 12
 6 Sweden 9.3 11
 7 Netherlands 8.9 9
 8 Australia 8.8 12
 9 Norway 8.8 8
 10 Switzerland 8.8 9
 11 Canada 8.7 12
 12 Luxembourg 8.7 6
 13 United Kingdom 8.7 13
 14 Austria 8.0 9
 15 Hong Kong 8.0 11
 16 Germany 7.7 11
 17 Belgium 7.6 9
 18 Ireland 7.5 9
 19 USA 7.5 13
 20 Chile 7.4 12
 21 Israel 7.0 10
 22 Japan 7.0 13
 23 France 6.9 12
 24 Spain 6.9 11
 25 Portugal 6.6 9
 26 Oman 6.3 4
 27 Bahrain 6.1 3
 28 Cyprus 6.1 3
 29 Slovenia 5.9 12
 30 Botswana 5.7 6
 31 Taiwan 5.7 13
 32 Qatar 5.6 3
 33 Estonia 5.5 12
 34 Uruguay 5.5 7
 35 Italy 5.3 11
 36 Kuwait 5.3 4
 37 Malaysia 5.2 13
 38 United Arab Emirates 5.2 3
 39 Tunisia 4.9 6
 40 Hungary 4.8 13
 41 Lithuania 4.7 10
 42 Namibia 4.7 6
 43 Cuba 4.6 3
 44 Jordan 4.6 7
 45 Trinidad and Tobago 4.6 6
 46 Belize 4.5 3
 47 Saudi Arabia 4.5 4
 48 Mauritius 4.4 5
 49 South Africa 4.4 12
 50 Costa Rica 4.3 8
 51 Greece 4.3 9
 52 South Korea 4.3 12
 53 Belarus 4.2 5
 54 Brazil 3.9 12
 55 Bulgaria 3.9 10
 56 Czech Republic 3.9 12
 57 Jamaica 3.8 5
 58 Latvia 3.8 7
 59 Colombia 3.7 11
 60 Croatia 3.7 8
 61 El Salvador 3.7 7
 62 Peru 3.7 9
 63 Slovakia 3.7 11
 64 Mexico 3.6 12
 65 Poland 3.6 14
 66 China 3.4 13
 67 Panama 3.4 7
 68 Sri Lanka 3.4 7
 69 Syria 3.4 4
 70 Bosnia & Herzegovina 3.3 6
 71 Dominican Republic 3.3 6
 72 Egypt 3.3 9
 73 Ghana 3.3 6
 74 Morocco 3.3 5
 75 Thailand 3.3 13
 76 Senegal 3.2 6
 77 Turkey 3.1 14
 78 Armenia 3.0 5
 79 Iran 3.0 4
 80 Lebanon 3.0 4
 81 Mali 3.0 3
 82 Palestine 3.0 3
 83 India 2.8 14
 84 Malawi 2.8 4
 85 Romania 2.8 12
 86 Mozambique 2.7 5
 87 Russia 2.7 16
 88 Algeria 2.6 4
 89 Madagascar 2.6 3
 90 Nicaragua 2.6 7
 91 Yemen 2.6 4
 92 Albania 2.5 5
 93 Argentina 2.5 12
 94 Ethiopia 2.5 5
 95 Gambia 2.5 4
 96 Pakistan 2.5 7
 97 Philippines 2.5 12
 98 Tanzania 2.5 6
 99 Zambia 2.5 5
 100 Guatemala 2.4 8
 101 Kazakhstan 2.4 7
 102 Moldova 2.4 5
 103 Uzbekistan 2.4 6
 104 Venezuela 2.4 12
 105 Vietnam 2.4 8
 106 Bolivia 2.3 6
 107 Honduras 2.3 7
 108 Macedonia 2.3 5
 109 Serbia & Montenegro 2.3 5
 110 Sudan 2.3 4
 111 Ukraine 2.3 10
 112 Zimbabwe 2.3 7
 113 Congo, Republic of the 2.2 3
 114 Ecuador 2.2 8
 115 Iraq 2.2 3
 116 Sierra Leone 2.2 3
 117 Uganda 2.2 6
 118 Cote d' Ivoire 2.1 5
 119 Kyrgyzstan 2.1 5
 120 Libya 2.1 3
 121 Papua New Guinea 2.1 3
 122 Indonesia 1.9 13
 123 Kenya 1.9 7
 124 Angola 1.8 3
 125 Azerbaijan 1.8 7
 126 Cameroon 1.8 5
 127 Georgia 1.8 6
 128 Tajikistan 1.8 3
 129 Myanmar 1.6 3
 130 Paraguay 1.6 6
 131 Haiti 1.5 5
 132 Nigeria 1.4 9
 133 Bangladesh 1.3 8

Country Standard High-low
 deviation range

Finland 0.3 9.2 - 10.0
Iceland 0.3 9.2 - 10.0
Denmark 0.4 8.8 - 9.9
New Zealand 0.2 9.2 - 9.6
Singapore 0.1 9.2 - 9.5
Sweden 0.2 8.8 - 9.6
Netherlands 0.3 8.5 - 9.3
Australia 0.9 6.7 - 9.5
Norway 0.5 8.0 - 9.3
Switzerland 0.8 6.9 - 9.4
Canada 0.9 6.5 - 9.4
Luxembourg 0.4 8.0 - 9.2
United Kingdom 0.5 7.8 - 9.2
Austria 0.7 7.3 - 9.3
Hong Kong 1.1 5.6 - 9.3
Germany 1.2 4.9 - 9.2
Belgium 0.9 6.6 - 9.2
Ireland 0.7 6.5 - 8.8
USA 1.2 4.9 - 9.2
Chile 0.9 5.6 - 8.8
Israel 1.2 4.7 - 8.1
Japan 1.1 5.5 - 8.8
France 1.1 4.8 - 9.0
Spain 0.8 5.2 - 7.8
Portugal 1.2 4.9 - 8.1
Oman 0.9 5.5 - 7.3
Bahrain 1.1 5.5 - 7.4
Cyprus 1.6 4.7 - 7.8
Slovenia 1.2 4.7 - 8.8
Botswana 0.9 4.7 - 7.3
Taiwan 1.0 3.6 - 7.8
Qatar 0.1 5.5 - 5.7
Estonia 0.6 4.7 - 6.6
Uruguay 1.1 4.1 - 7.4
Italy 1.1 3.3 - 7.3
Kuwait 1.7 3.3 - 7.4
Malaysia 1.1 3.6 - 8.0
United Arab Emirates 0.5 4.6 - 5.6
Tunisia 0.7 3.6 - 5.6
Hungary 0.6 4.0 - 5.6
Lithuania 1.6 3.0 - 7.7
Namibia 1.3 3.6 - 6.6
Cuba 1.0 3.6 - 5.5
Jordan 1.1 3.6 - 6.5
Trinidad and Tobago 1.3 3.4 - 6.9
Belize 0.9 3.6 - 5.5
Saudi Arabia 2.0 2.8 - 7.4
Mauritius 0.7 3.6 - 5.5
South Africa 0.6 3.6 - 5.5
Costa Rica 0.7 3.5 - 5.5
Greece 0.8 3.7 - 5.6
South Korea 1.0 2.0 - 5.6
Belarus 1.8 2.0 - 5.8
Brazil 0.5 3.3 - 4.7
Bulgaria 0.9 2.8 - 5.7
Czech Republic 0.9 2.6 - 5.6
Jamaica 0.4 3.3 - 4.3
Latvia 0.4 3.4 - 4.7
Colombia 0.5 2.7 - 4.4
Croatia 0.6 2.6 - 4.7
El Salvador 1.5 2.0 - 6.3
Peru 0.6 2.7 - 4.9
Slovakia 0.7 2.9 - 4.7
Mexico 0.6 2.4 - 4.9
Poland 1.1 2.4 - 5.6
China 1.0 2.0 - 5.5
Panama 0.8 2.7 - 5.0
Sri Lanka 0.7 2.4 - 4.4
Syria 1.3 2.0 - 5.0
Bosnia & Herzegovina 0.7 2.2 - 3.9
Dominican Republic 0.4 2.7 - 3.8
Egypt 1.3 1.8 - 5.3
Ghana 0.9 2.7 - 5.0
Morocco 1.3 2.4 - 5.5
Thailand 0.9 1.4 - 4.4
Senegal 1.2 2.2 - 5.5
Turkey 0.9 1.8 - 5.4
Armenia 0.8 2.2 - 4.1
Iran 1.0 1.5 - 3.6
Lebanon 0.8 2.1 - 3.6
Mali 1.8 1.4 - 5.0
Palestine 1.2 2.0 - 4.3
India 0.4 2.1 - 3.6
Malawi 1.2 2.0 - 4.4
Romania 1.0 1.6 - 5.0
Mozambique 0.7 2.0 - 3.6
Russia 0.8 1.4 - 4.9
Algeria 0.5 2.0 - 3.0
Madagascar 1.8 1.2 - 4.7
Nicaragua 0.5 2.0 - 3.3
Yemen 0.7 2.0 - 3.4
Albania 0.6 1.9 - 3.2
Argentina 0.5 1.6 - 3.2
Ethiopia 0.8 1.5 - 3.6
Gambia 0.9 1.5 - 3.6
Pakistan 0.9 1.5 - 3.9
Philippines 0.5 1.6 - 3.6
Tanzania 0.6 2.0 - 3.3
Zambia 0.6 2.0 - 3.3
Guatemala 0.6 1.5 - 3.4
Kazakhstan 0.9 1.6 - 3.8
Moldova 0.8 1.6 - 3.6
Uzbekistan 0.5 2.0 - 3.3
Venezuela 0.5 1.4 - 3.1
Vietnam 0.8 1.4 - 3.6
Bolivia 0.4 1.9 - 2.9
Honduras 0.6 1.4 - 3.3
Macedonia 0.3 2.0 - 2.7
Serbia & Montenegro 0.5 2.0 - 3.2
Sudan 0.3 2.0 - 2.7
Ukraine 0.6 1.6 - 3.8
Zimbabwe 0.3 2.0 - 2.7
Congo, Republic of the 0.5 2.0 - 2.8
Ecuador 0.3 1.8 - 2.6
Iraq 1.1 1.2 - 3.4
Sierra Leone 0.5 2.0 - 2.8
Uganda 0.7 1.8 - 3.5
Cote d' Ivoire 0.5 1.5 - 2.7
Kyrgyzstan 0.4 1.6 - 2.7
Libya 0.5 1.7 - 2.7
Papua New Guinea 0.6 1.5 - 2.7
Indonesia 0.5 0.7 - 2.9
Kenya 0.3 1.5 - 2.4
Angola 0.3 1.4 - 2.0
Azerbaijan 0.3 1.4 - 2.3
Cameroon 0.2 1.4 - 2.0
Georgia 0.7 0.9 - 2.8
Tajikistan 0.3 1.5 - 2.0
Myanmar 0.3 1.4 - 2.0
Paraguay 0.3 1.2 - 2.0
Haiti 0.6 0.7 - 2.3
Nigeria 0.4 0.9 - 2.0
Bangladesh 0.7 0.3 - 2.2

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Table 1: Kuwait, Qatar, Bahrain, & UAE: Cross Comparison of Legal
Systems & Financial Markets

Country Judicial System Investment
 Authority or
 Equivalent

State of 3 levels: Kuwait
Kuwait - Courts of First Instance Investment
 - Courts of Appeal Authority
 - Courts of Cassation (KIA)- 1982

State of Shari'a Courts: Civil Courts: Qatar Central
Qatar - Courts of First - Courts of Bank (QCB)-
 Instance Justice 1993
 - Shari'a Court - Appeal Court
 of Appeal of Justice
 - Court of - Court of
 Cassation Cassation

Country Stock Number of
 Exchange Listed Privatization
 Body Companies

State of Kuwait 77 listed Came into
Kuwait Stock companies as effect in 2000
 Exchange of 2002
 (KSE)- 1977

State of Doha 30 listed Came into
Qatar Securities companies as effect in 1998
 Market of March
 (DSM)- 2004
 1997

Table 1: Kuwait, Qatar, Bahrain, & UAE:
Cross Comparison of Legal Systems & Financial Markets

Country Judicial System Investment
 Authority or
 Equivalent

Kingdom Shari'a Courts: Civil Courts: Economic
of Bahrain - Senior Shari'a - Courts of Development
 Court of Appeal Minor Causes Board (EDB)-
 - High Shari'a - High Court of April 2000
 Court of Appeal Appeal
 - Court of
 Cassation

United Shari'a Courts: Civil Courts: Dubai
Arab - Courts of First - Courts of First Development &
Emirates- Instance Instance Investment
Dubai - Civil Courts of - Federal Court Authority
 Appeal of Appeal (DDIA)- 2002
 - Court of - Court of
 Cassation in Abu Cassation
 Dhabi

Country Stock Number of
 Exchange Listed Privatization
 Body Companies

Kingdom Bahrain 40 listed Came into
of Bahrain Stock companies effect in
 Exchange by end of Spring 2001
 (BSE)- June 2002
 1989

United Dubai 25 listed Came into
Arab Financial companies as effect in 2000
Emirates- Market- of 2004
Dubai 2000; Third
 biggest
 Stock
 Exchange in
 the Arab
 World