Is Jordan objectively assessing its capital markets reforms?
The socio-legal discourse on Jordanian capital markets is still dominated by unstudied inputs and comments. Those with vested interests still unconvincingly argue that there is nothing wrong with the regulatory direction of our capital markets. Such misplaced assertions cast serious doubt on Jordan's ability to objectively assess its capital markets reforms.
The lethargic, laid back methodology has largely remained untouched. Yes, change cannot come overnight. But this doesn't mean that the inertia of the old “conventionalist” Jordan should still linger unchallenged. What is urgently needed in Amman is a focused, structured and professional regulatory approach that openly builds upon the constructive contributions from all concerned sectors of our Jordanian financial services industry.
Additionally, where is precision? For, there is also a chronic lack of juridical clarity vis-à-vis Jordanian capital markets regulation.
It is taken for granted that we need to upgrade our capital markets regulation to match international standards. But do we understand the regulatory rationale behind adopting Western models? Do we also know why we should tie our juridical examination of our capital markets to this foreign jurisdiction or that?
It would have been difficult to justify a study that dwells on Western standards in capital markets regulation a decade ago. Arab interest in international regulatory standards is very recent. Needless to say, the historical raison d'être of Arab capital markets was traditionally to serve as an exclusive speculative tool.
Nor should any comprehensive regulatory examination of Arab capital markets neglect the juridical legal environment. It is true that Shari'a's influence on Arab civil codes vary considerably. But this cannot be disregarded due to the fact that Shari'a is a source to both Arab constitutions and civil codes. Such a reality cannot be detached from any proper regulatory examination of Arab capital markets. And that is precisely what makes any regulatory study interesting from a juridical legal perspective.
For, while Islamic law (Shari'a) is permissive of equity trading on jurisprudential grounds, it is nonetheless traditionally prohibitive of speculation. This prima facie means that Islamic law is not jurisprudentially opposed to modern equity trading. Indeed, Shari'a is juridically in favor of investor protection and its socio-economic theory is based on social justice and profit sharing. Certain concepts such as `riba' and `gharar' can even be viewed as over-protective of the weaker party to a contract. Examining Shari'a juridically in the context of Arab capital markets is also important for two broad reasons. First, it impacts upon the modus operandi of equity markets in the sense of streamlining the methodology of trading. Secondly, Shari'a has a juridical influence on the definition of “securities” in terms of limiting trading to certain acceptable financial instruments to the exclusion of others, especially debt and deferred ones.
Admittedly, there is a technical difference between Arab and European systems in the sense of being institutional or functional. [Institutional regulation refers to allocating different regulatory authorities to different institutions broadly carrying on with similar businesses. Functional regulation focuses on the different types of businesses, regardless of the institutions.] But this should not undermine the benefits that can be had from examining relevant UK regulations (and their underpinning legal concepts), together with EU minimum standards whenever applicable.
Examining US Federal jurisdiction (especially in the context of available civil remedies), is also relevant. Yet to be more specific one says that the choice of EU and UK regulations is not, however, arbitrary. It is justified on the following three grounds.
First, the overwhelming majority of Arab countries follow the UK models of universal banking, as opposed to the US banking system under the Glass/Steagall Act of 1933 (amended in 1987) which separates commercial and investment banking activities. This is significant as financial intermediation by Arab banks plays a significant role in the life cycle of Arab equities. Indeed, many Arab statutes specifically mandate that issuance on the primary markets shall be done through banks. Additionally, the experience of Common Law countries in terms of the efficiency of equity and public remedies in confronting financial crimes is highly relevant. Needless to say, trust concepts (whether constructive or actual) are vital in addressing many areas relating to fraudulent market activities.
Secondly, with recent Arab (political and economic) attempts at creating an Arab community market, there is an increasing willingness to consider harmonizing Arab regulations. The EU experience in this context would be important to reflect upon, especially as such harmonization of entry requirements (on par with EU “minimum” or “equivalent” standards) is already under way in the Gulf Cooperation Council. In addition, there is also evidence of a collective desire to link Arab securities markets in order to increase their depth through multi-listing agreements.
Thirdly, looking at the EU is relevant due to the many recent association agreements, which Arab countries have signed with the EU. In this context, the EU has so far signed association agreements with a number of Arab countries including Egypt, Jordan, Tunisia and Morocco, which are expected to lead to the establishment of a free trade zone by the year 2010. Such Arab-EU association agreements, though at the moment not directly related to financial services, are tying more Arab markets with Europe in an unprecedented manner that is very likely to expand in the future to encompass financial services.
To conclude, it is apparent from the above that we urgently need to understand fully all the socio-legal implications of the regulatory discourse vis-à-vis Jordanian capital markets. Failing this, amateurish inputs will continue to dominate this vital area of the Jordanian national economy. — (Jordan Times)
By Lu'ayy Minwer Al Rimawi
The writer is a part-time lecturer in law at the London School of Economics
© 2000 Mena Report (www.menareport.com)