Kuwaiti investors were introduced to trading in stocks with the creation of the National Bank of Kuwait in 1952 as the first Kuwaiti shareholding company. In the following decades, the Government of Kuwait issued a number of laws and rules to regulate stock-trading activities, culminating in August 1983 with the issuance of an Amiri Decree establishing Kuwait Stock Exchange. The exchange was mandated to organise trading activities and to regulate them, which it continued to do until its regulatory responsibilities were transferred to the Capital Markets Authority, which was established by a new law which, after being signed by the Amir, came into force on 28th February 2010.
Kuwait has always been a leader amongst Arab nations in respect of stock market trading:
• In November 1995, KSE implemented its first electronic trading system
• In October 1998, Forwards were introduced
• Futures were introduced in August 2003
• Online trading started in November 2003
• Options have been traded on KSE since March 2005.
KSE’s market capitalisation has consistently been one of the largest of Arab markets, with over two hundred companies totalling over USD 100 billion in market value. With a market capitalisation to GDP ratio of approximately 100%, KSE has a stock market which is deeper than many of its regional peers.
Late in 2009, KSE signed a “partnership” contract with NASDAQ OMX, under which KSE is implementing the “X-stream” trading system, and the “SMARTS” surveillance system, and is benefitting from a transfer of knowledge and experience from NASDAQ OMX’s wide range of experts in all aspects of modern commercial markets. The SMARTS surveillance system was implemented in May 2010, and the first phase of the implementation of X-stream in May 2012.
Under KSE’s partnership arrangements a number of studies and initiatives have been completed, focused on bringing KSE and its marketplace into greater compliance with international standards and best practices. The market changes which have resulted so far include:
• The “Board Lot” rule has been withdrawn, eliminating the “Odd Lot” market
• Closing prices are to be calculated in a closing auction, not just by the last traded price
• Auctions are to use price/time priority (previously priority was given to the earliest order)
• Companies are classified into sectors by the International Classification Benchmark (ICB, a product of FTSE International Limited and has been licensed for use by KSE)
• The “Kuwait 15” index has been introduced (“KSX15”), designed to be investable in order to support a range of new products and services
• New order types are supported (“GTC” and “GTD”).
“Phase 1” of X-stream (in May 2012) entailed major changes in the operations of the brokers. Previously, most brokers relied on workstations supplied by KSE and typically had little or no IT capability; now they are equipped with their own order management systems and many are building much more sophisticated back offices. Accordingly, both the exchange and the market participants are preparing for “Phase 2” of the new trading system, which will allow KSE to introduce a wide range of new products and services, potentially including:
• Futures and options in the international form
• Market-makers for appropriate products
• Fixed income instruments including sukuks
• New indices…
KSE recognises its responsibility to Kuwait as a nation and to investors, listed companies and market participants to meet international standards and best practices; it is full of confidence as it faces the future challenges to achieve “a fair, transparent, orderly and efficient marketplace”.