Transparency & Disclosure in Capital Markets. Nick Nadal 26 January 2010

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1 Transparency & Disclosure in Capital Markets Nick Nadal 26 January 2010

2 Disclosure and Transparency basics There is a symbiotic relationship between market information and market efficiency Better quality information available to the market improves resource allocation and the economic efficiency of workers, consumers, and producers. Transparency and disclosure are key elements in enhancing investor confidence and improved credit ratings, in turn these result in: lower capital costs, increased attractiveness to FDI, greater financial stability and long-term growth.

3 Transparency and disclosure in the region Hawkamah studies: Hawkamah-IFC Survey 2008 (MENA) BASIC (GCC) BASIC (GCC)

4 Hawkamah-IFC 2008 Survey: Information contained in Annual Reports % of respondents Report of the chairman 85 Financial statements 82 Market share, sales and marketing 77 Ownership structure and dividend policy 72 Future plans of the company 64 Dividend history 54 Remuneration 44 Biographical details of the board 41 Beneficial owners 36 Management discussion/analysis 30 Corporate governance policies 28 Environment, social and economic sustainability 27 Share options policy 13

5 Hawkamah-IFC Survey: Main reasons preventing disclosure 80% 70% 60% 50% 40% 30% 20% 10% 0% No legal requirement No demand No economic value Fear of unfair competition Security issues Fear of repercussions from regulatory Lack of resources Banks 76% 37% 34% 13% 7% 3% 0% Listed companies 69% 33% 29% 26% 12% 7% 4% Aggregated 72% 35% 31% 20% 10% 5% 2% Banks Listed companies Aggregated

6 BASIC methodology and CG Behavioral Assessment Score for Investors and Corporations BASIC provides systematic insight into a number of essential parameters which constitute the backbone of Corporate Governance The methodology developed by The National Investor and Hawkamah is split into three distinct components: Trading history Corporate communication Disclosure

7 Hawkamah-TNI Survey, August 2008

8 BASIC 2 by category

9 BASIC evolution by market,

10 Year-on-year improvement in BASIC by country

11 BASIC 2 by sector

12 BASICs: Nasdaq-Dubai compared to GCC BASIC Trading History Corporate Communication Disclosure DIFX GCC

13 Take away from BASIC II Results of BASIC II encouraging: 2/3 of listed companies have shown some BASIC improvement and 26 companies increasing their BASIC score by 100 percent substantial improvements in disclosure on voting, ownership and management profiles, with more companies having investor/analyst meetings But no improvement in important areas such as availability of annual reports on websites, and pre-announcement of results publication dates. BASIC scores do not appear correlated with company size or length of existence Nasdaq-Dubai companies set a higher BASIC standard than their peers GCC practices still fall short of international standards. Country effects are clear: reform must come from regulators & authorities

14 UAE Corporate Governance code Q Provisions assessed against current practice of UAE-listed companies (SP MENA universe) Describe the tasks and competencies of the Board and those delegated to the Management - currently only 17% provide details of the role of the Board. Composition of the Board to be described in terms of Director categories, details, experiences, and qualifications - currently only 36% provide details of the Board Members beyond name and title. Describe the directorship of Directors in any other joint stock companies - currently only 20% provide details of other directorships of Board Directors.

15 CG Code a key milestone, but challenges remain Enforcement comply or explain essentially depends on how effectively the validity of explanations for non-compliance is assessed. The bar is raising corporate governance recommendations revisited in the UK, US, EU, Singapore, etc. Recent scandals, miscommunication The need to attract long-term investors Overshoot in corporate governance Novo Mercado

16 Hawkamah-S&P MENA ESG Index Environmental, Social and Corporate Governance (ESG) index for 11 countries in the MENA region. The companies that are concerned about their customers, employees, communities, and the environment are more likely to be sustainable in the long run. Screen up to 400 companies of the MENA region giving them scores on environmental, social and corporate governance parameters. Raise the profile of those companies that perform well along the three parameters when compared to their market peers. Create a market incentive for companies

17 Join us in BUILDING INSTITUTIONS FOR THE REGION Hawkamah The Institute for Corporate Governance DIFC, The Gate Level 14 T: F: E:

QFMA Code of Corporate Governance

QFMA Code of Corporate Governance Qatar Financial Markets Authority Stakeholders Meeting May 3, 2009 Doha, Qatar Dr. Nasser Saidi Hawkamah Institute for Corporate Governance Presentation Outline Definition