The Kuwait Stock Exchange is making strenuous efforts in cooperation with the Kuwait Clearing Company under the supervision of the Capital Markets Authority to make the trading in shares of listed and delisted companies along with unlisted operational companies through an over the counter (OTC) market more regulated because some licensed brokers and their cooperators take advantage of the absence of a stock pricing mechanism, as deals and their prices depend on the desire of the buyer and seller.
In this context, investment sources told Al-Rai that the lack of pricing or resorting to clear evaluation mechanisms for the shares listed in the OTC in a way that allows them to be traded in an appropriate framework which allowed some people from the brokerage companies to arrange with parties outside the system through a network targeting owners of operational shares that are not officially priced in the market to seize their stock of shares at the lowest prices, on the pretext that they are “not worth anything.”
The sources indicated that this network, after executing a purchase deal for a quantity of a share with a few bankruptcies via “OTC”, although its value is equivalent to hundreds of bankruptcies, they offer that quantity back to the senior owners of that company or those who have full knowledge of the company’s operational performance and the stability of its financial position, to carry out a deal selling in the same way, but at multiples of the purchase value, which essentially makes the selling shareholder the victim.
The sources said this network practices a policy of opacity and valuation of shares at less than the prices they deserve in order to force the owner to sell at the prices offered, noting that deals were made at low prices through the aforementioned system or through the controls of transactions of a special nature for the shares of companies whose shareholders are less than 50. However, sudden recommendations are soon issued to buy the same shares in larger amounts, and then distribute the spoils among the participants in the process.
The sources stressed that the negative practices of that network harm the Kuwaiti market in general, taking advantage of the absence of a fair evaluation of shares in the OTC, calling for the necessity of subjecting unlisted shares to controls and evaluations through approved agencies in order to narrow the screws on those abuses that have not yet been criminalized.
The sources said that the number of companies that trade via OTC has risen to 127, of which about 50 have exited the stock exchange due to delisting or voluntary withdrawal.
It stated that judicial rulings were issued a while ago in favor of a bank to cancel more than one deal that took place through the auction and according to orders to liquidate a portfolio, including shares of an educational company owned by a debtor in favor of another party that were sold in the auction at a price of 15 fils per share, and then resold minutes after the auction at 250 fils per share, although the stock witnessed previous deals of 800 fils.
The bank obtained a judgment invalidating the reservation signed by the plaintiff at the time and considering what happened with the consequences of selling the shares as if it had not happened, which sparked a wide discussion between the eligibility of the plaintiff and the main debtor bank.
A local bank submitted to the authorities responsible for the market system a proposal to avoid manipulation and exploitation of auctions that take place through the stock exchange according to the orders of the prosecution or in implementation of the provisions, at prices that do not reflect the market or book value of the share, and so that the procedures for selling unlisted securities do not take a long period due to the lack of buyers applying to buy the security at the base price.
It is worth noting that the records of the shareholders of unlisted companies are distributed between the Kuwait Clearing Company, which has developed a special system for that, and the Gulf Securities Holding Company, which provides custodian services for many companies that have not been traded in the first and main markets for a long time and is still playing the same role.