New rules and regulations by the Qatar Financial Markets Authority and Qatar Stock Exchange are further steps by the country to encourage foreign investment.

The Qatar Financial Markets Authority (QFMA) announced earlier this year a slew of new guidelines, including the issuance of Governance Code for Listed Funds, and Listing Rules for Funds’ Units listed in the Qatar Stock Exchange (QSE).

This part of the QFMA’s ongoing development of its regulations, which aims to enhance the attractiveness of the investment environment of the capital market, as well as to increase the diversity of the financial products listed in the QSE.

According to QFMA, ‘It will continue to strengthen its regulations to meet the investors’ needs with adopting the best international practices related to investment funds and relevant governance. This is a significant step for QFMA while exerting efforts to develop the Qatari capital market, and strengthen the elements that attract local and international funds for listing in QSE. The revision and update of Listing Rules & Governance Code would provide a clear framework for local and international fund management companies to be listed in QSE and encourage the development of asset management in the State of Qatar.’

Qatar Stock Exchange later in the year introduced a mandatory rule-based investor relations (IR) regime, effective from 1 October 2019. This is part of QSE’s eagerness to promote the adoption of international best practice in IR among its listed companies, to enhance its attractiveness to global investors.

QSE CEO Rashid bin Ali Al Mansoori told the 10th annual IR conference in September that ‘As QSE is Qatar’s national stock exchange, we seek to support the sustainability of our listed companies in the years and decades ahead, especially in light of the current geopolitical instability in the region. The rules reflect best-practice and should in any case be standard for listed companies in today’s regulatory capital markets’ environment.’

The rules will also achieve quality investor relations thereby improving market accessibility, and support the development of successful capital markets.Under the new IR regime, it is now mandatory for all listed companies to have an IR officer, as well as a dedicated section on IR on their website.

Under QSE’s commitment to create effective communication channels and improve ongoing communication between both the listed companies and investors, QFMA has approved a set of minimum requirements for the IR Rules – these will become part of QSE’s Rulebook.

A synopsis of recent updates by QFMA

QFMA’s Board Decision No 1 of 2019 Listing Rules for Funds’ Units Repeals two previous Board Decisions, Nos 1 of 2012 and 2015. Outlines the fund capital, the fund’s net assets value, requirements of the fund manager, and when and how the QFMA may suspend or cancel a fund for non-compliance.

QFMA’s Board Decision No 2 of 2019 Governance Code for Listed Funds Does not repeal any earlier Board Decisions by the QFMA. However, it does state that all the funds implement governance principles set out in the decision, namely justice, equality among stakeholders without any type of discrimination, and transparency and timely disclosure to the authority and stakeholders so 

that they may make decisions and undertake their duties properly. The principles also include ensuring the public interest of the fund over any personal interest.

QFMA’s Board Decision No 3 of 2019 Amendment of Market Maker Rules Amends some articles of Decision No 4 of 2017, regarding the definition of eligible securities and the role of the market maker.

QFMA’s Board Decision No 4 of 2019 Margin Trading Rules Repeals Board Decision No 6 of 2014. Margin trading is ‘a transaction, whereby the company pays a percentage of the securities’ market value purchased for its client pursuant to the Agreement governing the relation between them’. The Decision has added some requirements to the Margin Trading Agreement, revised the calculation of the Maintenance Margin percentage, and added a number of further obligations on the margin trading company (who is a financial services company authorised by QFMA to conduct business as per the Financial Services Rulebook). 

QFMA’s Board Decision No 5 of 2019 Financial Services Rulebook Repeals Board Decision No 5 of 2009. The Decision extends the permitted financial activities, and the broker must be a member of the financial markets or depository under one of three classifications. A license to conduct financial  services is granted to Qatari companies only and no member of senior management should have been convicted during the three years preceding the licence submission date, or have been declared bankrupt unless rehabilitated. The Decision also sets out the minimum required paid up capital of the licence applicant, the licence period and document requirements, and the rights and obligations of the company, including any branches and agents. The company must commence a licensed activity within six months of the date the licence was granted.

Why rules and reviews are important for Qatar’s foreign investment strategy

There has been a joint collaboration between the QSE, QFMA and the listed companies over the last few years, to ensure that disclosure and transparency are developed through an increasing focus on IR. This is especially important after Qatar was upgraded to emerging market status by international index compiler MSCI (Morgan Stanley Capital International).

In September, following the FTSE Semi-Annual Index Review, FTSE Russell reclassified shares listed on the QSE. A company’s inclusion and reclassification in global indices is subject to various criteria, such as the size of the company’s investable capital and market capitalisation, liquidity and turnover rates.

Consequently, Qatar Fuel has been reclassified from FTSE Mid Cap Index to Large Cap Index, Barwa Real Estate has been added to Mid Cap from Large Cap, and Al Meera has been added to Small Caps from Mid Cap. Salam International and Qatar Oman Investment Company have been added to FTSE Micro Cap Index. Islamic Holding Group has been deleted from FTSE Micro Cap Index, and Qatar National Navigation and Transport has been deleted from FTSE Micro Cap Index.

Being subject to periodic index reviews, which in turn lead to companies’ reclassifications, additions and deletions, by international index providers are used by international investors and portfolio managers. As a result of the periodic review process, the reclassified, added or deleted companies usually witness significant activity on their shares.

Qatar Stock Exchange’s current strategy is to increase investments from China, Hong Kong, Singapore and other Asian countries in order to further diversify its investor base – according to its 2018 Annual Report, it has also become a focus of interest for many foreign investment portfolios from the US and Europe. This is in part due to new legislation which has seen an increase in the foreign ownership limit (FOL), now set at 49%.

Many companies have already enhanced FOL up to 49%; consequently the Qatar Central Securities Depository (QCSD) has started amending the FOL in Industries Qatar, Gulf International Services, Mesaieed Petrochemical Holding, Qatar Electricity and Water, Qatar Islamic Bank, Barwa, Qatari Investors Group Qatar National Bank, and WOQOD.

The foreign ownership limit increase and the new guidelines issued by QFMA have further strengthened the position of Qatari companies listed on the MSCI emerging markets index and the FTSE Russell secondary emerging market index. 

Author: Sarah Palmer

This feature is an editorial from the ‘Banking and Commerce’ section in the latest issue of Marhaba – Issue 76, which comes out in December 2019.

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