The Jordanian authorities have launched a new over-the-counter (OTC) exchange as part of a series of initiatives to boost the competitiveness of the kingdom’s capital markets.
The new exchange is a by-product of two sets of regulations released earlier this year – namely, the Regulating Directives for Trading in Unlisted Securities and the Listing Securities Directives for 2016 – both of which were intended to streamline listing procedures and spur activity.
Over the counter
The market, which comes as an addition to Jordan’s existing three-tiered exchange, is made up of two types of companies: those previously listed on the Amman Stock Exchange (ASE) but suspended because of compliance violations and those unable to meet the requirements to be listed on the ASE.
Some 29 companies have already joined the OTC exchange, according to ASE figures, with a combined value 1.5 times greater than that of companies on the kingdom’s tertiary stock market.
Companies wishing to trade on the market must be registered with the Jordan Securities Commission and the Securities Depository Centre, and disclose both financial and non-financial information.
Trade is conducted through an electronic trading system to ensure efficiency and transparency, and allow interested parties to monitor, sell and buy through a certified broker-dealer.
The OTC market is expected to provide multiple benefits by broadening the base of Jordan’s capital markets, Nader Azar, CEO of the ASE, told OBG.
“In the first place, it will allow shareholders to have a price discovery mechanism, as well as an exit strategy,” he said. “Secondly, it will open the doors for more mergers and acquisitions for those companies looking to get out of choppy waters. Thirdly, it will facilitate connections for start-ups looking for investors.”
Importantly, the listing conditions of the new exchange will allow family-owned companies – which make up about 90% of Jordan’s small and medium-sized enterprises, according to official figures – to seek financing through the market.
In addition to boosting lagging trading volumes, policymakers will be looking for the new exchange to make Jordan’s market more competitive regionally and attract greater foreign investment.
Overseas investors – and in particular investors from elsewhere in the region – play a significant role in Jordanian capital markets.
Of the ASE’s JD18bn ($25.4bn) in market capitalization at the end of 2015, roughly 50% was owned by non-Jordanians, according to Azar. Some 37% was held by sovereign wealth funds, governments, high-net-worth individuals or other investment funds, all from Arab countries. Foreign investors from a mix of 100 different countries comprised the remainder.
Broader bourse reforms
The new OTC market is just one in a series of initiatives intended to stimulate growth in the broader capital markets.
In July the Council of Ministers ratified several measures to restructure and reinvigorate the ASE, which has not been performing at the same level since 2008. In the intervening years market capitalization on the bourse has fallen from around JD42bn ($59.3bn) to JD17bn ($24bn) as of early August.
As part of the initiative, the council called on the Central Bank of Jordan to encourage banks to ease credit restrictions in a bid to free up additional lending for investment in the markets.
It also charged the Ministry of Finance with conducting an exploratory study into the possibility of granting tax incentives to institutional investors. At present, this benefit is only extended to individual investors.
This follows a move from last June, when the Council of Ministers approved in principle the conversion of the ASE into a for-profit public shareholding company, which is expected to be completed by the end of the year.
“We are hoping that, gradually, investor confidence will build up and the profitability of the companies will pick up too,” Azar told OBG.
Oxford Business Group