Contracts For Differences In Kuwait

• Published date: 22 September 2020
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Contracts and Commercial Law, Securities
• Law Firm: STA Law Firm
• Author: STA Law Firm

Introduction

Contracts for Differences (CFDs) is a type of security investment wherein investors make a profit from the difference of a company's fluctuating stock value in the market. CFD is a form of derivative trading formed as an agreement between an investor and a CFD broker for exchanging the difference in the value of a financial product within the opening and closing time of the contract. CFDs can be classified as a form of security that is issued by the Company. The wider range of markets to invest with, the flexibility to go long or short, and the ease of contract execution are some of the advantages for an investor to choose this form of security over others. Kuwait established the Capital Market Authority in February 2010 as a regulatory body of the various transactions that take place in the market. In 2015, the body enacted a set of laws in relation to the market place conduct.

Capital Market Authority Law (CMA Law)

1. This is the Law that governs the regulations, procedures, sale, and offers in relation to the aforementioned securities, in Kuwait.
2. TheLaw was enacted in 2015 as Decree Number 72 by the Kuwaiti Parliament.
3. CMA Law is considered to be one of the most complex and diverse sets of regulations to be adopted by Kuwait in its recent years.

This article shall further discuss the regulations in relation to the licensing and other requirements for CFD Trading in Kuwait.

Securities

As per Law Number 7 of 2010, Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities, Security is defined as, 'Any instrument, in any legal form, that is an evidence of ownership of a share in a financial transaction, and that is negotiable pursuant to a license from the Authority, such as:

1. Shares issued or proposed to be issued in the capital of a company;
2. Any instrument that creates or acknowledges a debt issued or to be issued by a company;
3. Loans; bonds; Sukuk; and other instruments that can be converted to shares in the capital of a company;
4. All public debt instruments that are tradable and issued by the various government entities or public institutions and authorities;
5. Any right, option, or derivative relating to Securities;
6. Units in a collective investment Scheme;
7. Any paper or instrument considered by the Authority as a Security for the purposes of implementing this Law and the Bylaws.'

Any activity that falls under the aforementioned categories shall be termed as Securities. For companies to establish trading through securities, there are various obligations that are required to be fulfilled. Securities licensing has to be obtained in order for a Company to be authorized to issue securities. Kuwaiti entities like shareholding companies must secure the Authority's approval for issuing securities. The issuance approval process is necessary whether the issuance of the securities is direct or indirect. Bonds may be issued by shareholding companies directly, or indirectly through a special purpose vehicle that is established either onshore or offshore.

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