Raising Capital on Arab Equity Markets: Legal and Juridical Aspects of Arab Securities Regulation
Lu’ayy Minwer Al Rimawi
The Netherlands: Kluwer Law International, 2012
Lu’ayy Al Rimawi brings impressive credentials and broad experience to the writing of this book about a “hot” topic in the Arab region and on the international scene today. Having obtained his law degree at the University of Jordan, Al Rimawi became the first Jordanian law graduate to study for the Master’s of Law at Cambridge University, and then obtained his PhD at the London School of Economics. He has lectured at British and US universities about international law, Islamic financial law and comparative law, and published extensively on these and related topics. By focusing on the role of investor protection, especially disclosure vis-à-vis publicly traded securities, Al Rimawi aims to fill a gap in the existing literature about the legal aspects of Arab securities markets.
The book begins with an overview of the Arab countries’ economies in terms of financial capacity, and of Arab stock markets, from the most highly capitalised one, the Saudi Tadawul, to the recently established stock markets of Iraq, Libya and Syria, with the Amman Stock Exchange falling somewhere in the middle. According to the author, “Arab stock exchanges were historically seen as speculative tools for quick enrichment, as opposed to being economic engines for growth and sources for alternative funding.” (p. 52)
The 1990s, however, witnessed increased awareness of their potentially positive contribution to the national economy, sparking new concern for how they should be regulated.
This introduction leads into the ultimate focus of the book as stated in the title of Chapter 4: Securities Regulation, Investor Protection and Disclosure When Offering Shares to the Public. Al Rimawi addresses legal issues involved in the regulation of securities markets from many different angles, including market stability and efficiency, and buyer protection, to name only a few. Throughout, Jordan is taken as a case study, but the scope and relevance of the book is much broader because of the author’s comparative approach. The how’s and why’s of regulation, particularly the merits of mandatory vs. voluntary disclosure, are debated, with comparisons being made between the legal systems governing securities trading of different Arab countries, and between Jordanian laws and court decisions and their counterparts in the UK and EU.
Perhaps Al Rimawi’s most interesting and original contribution is a detailed examination of the actual and potential role played by Sharia in Arab securities regulation. (This is also the most complicated part of the book, and can be difficult to understand for the lay reader.) After defining various concepts prevalent in Sharia, such as riba, gharar, ghubin, taghreer, which have been to a greater or lesser degree incorporated into Arab states’ legal systems, he sketches out their implications for investor protection, the demands of disclosure, liability, litigation, etc. The analysis is detailed and meticulous as Al Rimawi explains the legal implications in all four major Sunni schools of Sharia.
In actual fact, securities trading in many Arab countries, including Jordan, is governed as much by special laws as by the precepts of Sharia, and Al Rimawi points to the lack of clarity and the many inconsistencies that arise from this mix. While he gives much credit to Jordan for reforming the regulation of its equity markets in recent years, he also points to shortcomings. For example, concerning liability for fraud or negligence in providing the buyer with accurate information before entering into a sale or contract, he writes: “It is true that on the surface it appears that the JCC [Jordanian Civil Code] has moved to including liability for negligent misstatements. However, a deeper analysis reveals that its position is based on incompatible sets of Shari’a and non-Sharia legal grounds.” (p. 247)
In his view, “proper amendments to Jordanian securities laws need to be made in order to provide better investor protection for shareholders in Jordan”. (p. 291)
This book is the first to compile all of this information in a single volume, and moreover to analyse the legal aspect of Arab securities markets in such detail. It should be of interest to many involved in the field of finance and equity trading, both investors and potential investors in Arab securities markets, plus those charged with regulating them.