Saudi authorities need to take action to stop speculative trading in the country's bourse to rescue it from further collapse and minimise damage to the domestic economy, the country's parliament has recommended.
Such an action, which should include punishment of speculators, will restore confidence that has been jolted by widespread speculation and the global financial crisis, the Shura Council said after a debate on the Tadawul's performance.
Reporting the debate by the Shura's Finance Panel, Saudi newspapers said the recommendations also included the creation of market makers in Tadawul bourse and allowing listed companies to buy back some of their shares.
"Market regulators need to play a bigger role in regaining confidence to the stock market and to intervene more powerfully to prevent speculative trading that pushed the market above 20,000 points in February 2006 and to only 4,000 points recently," the papers quoted the panel as saying.
"The market authority must implement its previous decisions to identify the persons or parties responsible for speculation and manipulation in order to punish them and prevent them from dealing in the market."
While the authority has played an active role in developing the bourse through a series of steps in the past year, it has not taken enough measures to stop speculation which is still dominant in the market, it said.
"We know that the market has remained a major field for speculation and this has hurt the economy and the society. The market authority is responsible for its stability but unfortunately, the market lacks this stability as it has sharply fluctuated over the past two years and is now steadily falling," it said.
"The Finance Panel asks the market authority to move to identify all those responsible for such malpractices and specify penalties against them, when they are convicted, they should be publicised and prevented from dealing."
Like other bourses in the Gulf, Saudi Arabia's Tadawul has sharply fluctuated over the past year because of speculation and the global crisis.
Tadawul, by far the largest stock exchange in the Middle East, has remained a largely speculative market despite a series of measures introduced by regulators through 2008 to ensure discipline and expand its role in domestic savings. One of the main steps was a decision by Tadawul in mid 2008 to display the names of major shareholders of its listed companies.
According to the decision, the names of shareholders who own at least five per cent of any listed companies must appear on Tadawul's screens and the Saudi Arabia's market website.
The move in August created confusion in Tadawul in the first three weeks, sharply depressing dealing and sending its market capitalisation to its lowest level of $400 billion (Dh1.4 trillion) since September.
After gaining around $192bn in 2007, the Saudi bourse capitalisation lost nearly $200bn in 2008, most of which occurred in the second half, as a result of persistent speculation and the fall out of the global crisis.