The Securities and Securities Activities Regulation in the Sultanate of Oman
The Muscat Securities Market (the MSM) was established on 21 June 1988 to regulate and control the Omani Securities Market. While it was a loosely regulated market in its initial stages, enactments such as Royal Decrees 80/98 and 82/98 have helped with restructuring the marketplace.
The Capital Market Law (the CML) establishes two bodies in relation to the Securities Market:
- Muscat Securities Market, established by Royal Decree (53/88); and
- Capital Market Authority, established by Royal Decree (80/98)
MSM was established for the purpose of trading, and the CMA was established for the purpose of regulating said market trade. While trading Securities in Muscat is legal and in practice, there are no standalone provisions governing this type of trade, except for Joint-Stock Companies that are issuing Securities. The option of trading in derivatives such as regulations stated as per CMA’s Capital Law and Commercial Companies Law will have to be abided as per applicability. Decision Number 1/2009, Issuing Executive Regulation of the Capital Market Law is the legislation that states the various regulations, conditions to be followed by any company that is dealing in Securities and establishing itself with the Oman Market.
Powers of the Authority
Chapter One of Part 4 of the Legislation Regulating Securities and Listed Companies provide for the Authority’s powers such as:
- organize, license and monitor the issue and trading of Securities;
- Supervise the operation of the Muscat Securities Market;
- Supervise all companies operating in the Field of Securities;
- Supervise public joint-stock companies;
- Supervise Insurance companies;
- Licensing and regulation of credit rating companies; and
- Licensing and regulation of special purpose vehicle.
Definition of Securities and Securities Activities
Part one of the Royal Decree Number 80/98, Legislations Regulating Companies Operating in the Field of Securities and Listed Companies states the various definitions pertaining to the Act. As per the Act, Securities is defined as,
“Shares and bonds issued by the Government and its Public Authorities, treasury bonds and bills, and other Securities negotiable in the market.”
Although Derivatives or other Financial Instruments are not specified under the aforementioned definition for the sake of traders in other instruments could consider their securities covered under the ambit of ‘Other Securities’ as per the aforementioned definition. The fact that although the definition is narrow, the fact that CMA regulates any kind of investments that are offered in the market is a supporting factor to trading in other Securities such as CFDs.
While the current regulations in place do not provide for a multitude of Securities to be traded in, it is to be noted that there is legislation underway for the purpose of regulating exempted Securities and that it is at its final stages of implementation, estimated to be passed as law during the publishing of this Article.
Activities conducted by companies dealing with Securities is mentioned under Article 25, Part 3 of First Volume as any company that:
- Promotes and underwrites Securities;
- Finances Investment in Securities;
- Participates in establishing the capital of companies using Securities;
- Deposits, clears and settles Securities transactions;
- Establishes and manages Securities portfolio and investment funds;
- Conducts brokering in Securities; or
- Manages trust accounts and custodianship of Securities.
The legislation provides for various criteria to be fulfilled for issuing any of the companies that want a license to conduct the aforementioned activities. These are:
- Applicant must be a commercial company registered in Oman or a branch of a foreign company.
- The objective of the company must be confined to the practice of one or more activities mentioned above.
- Issued capital and paid-up capital upon incorporation must not be less than the minimum amount specified, depending on the type and objectives of the company.
- Managers of the company must have the experience and efficiency required for the business of the company in the manner to be specified by a decision made by the Authority.
- Insurance needs to be obtained, the value of which shall be specified by the Authority.
- None of the founders, directors, or board members must have been convicted during the five years preceding the date of application.
Establishment and Licensing
Licenses for branches of licensed companies are stated as
- Market Maker in MSM
- Margin Financing
- Issuer of Structured Instruments
- Portfolio Management
- Managing Investment Funds
- Issue Management
- Investment Advice and Research
- Marketing non- Omani Securities
- Agent for Bondholders
There are minimum capital requirements for these activities that are mentioned in the Article.
Foreign company’s activities are granted as per Article 126, for the purpose of:
- Investment Advice and Research;
- Marketing non-Omani Securities;
- Issue Management; and
- Portfolio Management.
Anybody issuing Securities for trading shall be listed on the market, and the application for listing shall be submitted within one month from the date of registration in the Commercial Register.
Article 15 states that dealing in Securities in Oman is confined to dealing on the floor. Any dealing that takes place outside the floor is considered null and void.
As regulations are narrowly defined, any other form of dealing can be appealed to the Authority’s Board of Directors, who passes a case by case decision in pursuance to its Internal Regulations and Guidelines.
Application for foreign companies has various requirements to be fulfilled as per mentioned in Part IV of regulating legislations. In order to obtain approval for establishment, a company needs to submit the following:
- Payment receipt of application vetting fees.
- Names and nationalities of founders.
- Evidence of the founder’s good reputation and that they were not declared bankrupt during the last five years preceding the application or convicted in a felony or breach of trust as per Commercial Companies Law.
- Statement of the activities the company desires to carry out.
- Authorization by the founders or directors or their deputies to carry out establishment procedures and obtaining the license.
- Approval of Central Bank of Oman if the applicant is a bank with a separate investment banking division.
If the securities offered are for public subscription, it is mandatory for a Prospectus to be established by the company. This prospectus is to be filed in Arabic, disclosing the financial statements and all relevant information regarding the issuing company. The issue manager may translate the prospectus provided that in the event of a dispute, the Arabic one shall prevail. The issue manager and company shall be responsible for the accuracy of information. The prospectus must contain:
- Statements to be disclosed to the investors;
- Information relating to investment decision to be taken; and
- If there is concealed information, it shall be stated as to why it is concealed.
While these aforementioned documents are to be submitted for the establishment of a company for securities, Article 118 lists for documents relating to carrying out business for the first time and for the purpose of renewal:
- Payment receipt of licensing fees and the fees for carrying out the business.
- Certificate of registration in the commercial register and date, number, and place of registration.
- Copy of MOA, AOA, of the incorporated branch as well as the parent company, and any other documents in regards to the incorporation of a company.
- Bank Guarantee Evidence.
- Statement on the directors and officers and their qualifications and experience.
- Statement of fulfillment for the minimum number of employees.
- Appointment of Auditor as per CMA accreditation.
- Insurance Policy taken against liability for loss or damage to clients due to fault of company, officers, employees, loss, damage, or theft.
- Internal Regulations copy.
- Statement that the parent company is carrying out the activities the branch desires to carry out.
- Five plus years’ validity on the license granted to the parent company in its country of origin.
- Unconditional Bank Guarantee from the operating bank and authorized to the extent of 1 percent of paid-up capital of the company, not exceeding 15,000 Omani Riyal.
- Any other documents; if required.
While these aforementioned criteria for conducting business is for all companies, branches of foreign companies require further additional documents to be submitted. These are:
- True copy of constitutive memorandum and articles of association of the parent company in the country of origin and any other documents relating to the incorporation of the company.
- Statement that the parent company is carrying out the activities the branch is desired to carry out.
- The license granted to the parent company in the country of origin has been valid for not less than the last five years.
- Copy of the annual reports of parent company containing the audited financial statement for the past five years.
- Statement on the business of the parent company, subsidiaries and associates and their locations.
- Statement that the paid-up capital and shareholders’ equity of the parent company is not less than 2 Million Omani Riyals as per the last audited financial statements.
- Statement that the parent company will supervise the branch in the Sultanate and its compliance with the applicable laws, regulations and directives.
- Certificate from the regulatory authority in the county where the principal place of business of the applicant is located indicating the license granted to the company, date of commencement of business and continuation.
- Statement from the regulatory authority in the country where the principal place of business is located indicating approval for the company to carry out the business of the companies operating in securities in the Sultanate.
- Bank guarantee from the branch of a foreign company shall be 50,000 Omani Riyals
After 20 years of established Securities Market, the Authorities have finally legislated regulation that has been long overdue for various types of securities and derivatives such as swaps, forwards, futures, mortgage-backed securities, and options. This legislation also has potential for trading in commodity derivatives, currency swaps, interest rate futures, credit default swaps, CFDs, international indices and more. This would mean legislation separate for capital markets and securities markets. Royal Decree 50/2019 was passed earlier this year which provides for various permissions and regulations for foreign investors in the capital market.