CME-1 Securities Regulation & Compliance 2 — Questions and Answers
Question 1: What is required before a listed company can conduct a rights issue in Saudi Arabia?
- CMA approval of the offer documents and shareholder approval (Correct answer)
- Only board approval
- Only shareholder vote
- No approval needed
Correct answer: CMA approval of the offer documents and shareholder approval
A rights issue requires both CMA approval of the offering documents and a shareholder vote at a General Assembly, as it dilutes existing shareholders.
Question 2: What is a 'profit warning' and when must it be disclosed?
- A quarterly forecast published voluntarily
- An immediate disclosure when the company expects earnings to materially differ from market expectations (Correct answer)
- An annual budget document
- A document for internal management only
Correct answer: An immediate disclosure when the company expects earnings to materially differ from market expectations
A profit warning must be disclosed immediately when a company reasonably anticipates that financial results will materially deviate from prior guidance or analyst expectations.
Question 3: What are the consequences for a listed company that fails to meet continuing obligations?
- No consequences
- Trading suspension, fines, and potential delisting by the Saudi Exchange (Correct answer)
- Only a formal warning
- Mandatory share buyback
Correct answer: Trading suspension, fines, and potential delisting by the Saudi Exchange
Failure to meet continuing obligations may result in trading suspension, regulatory fines, and in severe cases delisting from the Saudi Exchange.
Question 4: Which body must approve the appointment of external auditors for CMA-licensed entities?
- Ministry of Commerce
- CMA under its licensing conditions (Correct answer)
- SAMA
- The board alone
Correct answer: CMA under its licensing conditions
CMA-licensed entities must comply with CMA rules regarding the qualification, appointment, and rotation of external auditors as part of their licensing conditions.
Question 5: What is the maximum term for an external auditor of a listed company without mandatory rotation under CMA rules?
- 2 years
- 3 years
- 5 years (Correct answer)
- 10 years
Correct answer: 5 years
CMA Corporate Governance Regulations require external auditor rotation after a maximum of five consecutive years to preserve independence.
Question 6: What is the purpose of the CMA's 'Authorized Persons Regulations'?
- Regulating individual investors
- Establishing licensing requirements, conduct standards, and obligations for CMA-licensed firms (Correct answer)
- Setting capital market listing requirements
- Governing public company governance only
Correct answer: Establishing licensing requirements, conduct standards, and obligations for CMA-licensed firms
The Authorized Persons Regulations govern the licensing, capital requirements, conduct of business, and compliance obligations for firms holding CMA licenses.
CME-1 Securities Regulation & Compliance 2
What is required before a listed company can conduct a rights issue in Saudi Arabia?