The 2004 World Bank's Financial Sector Assessment (FSA) reports that there is practically no activity on Algeria's securities markets, despite efforts to establish a regulatory framework to license and supervise market participants and build an infrastructure. This is in part caused by high transaction costs and low investor confidence in the markets. The FSA indicates that significant improvements must be made to the regulatory framework, disclosure of financial information, and settlement systems before the securities markets grow. In the government's efforts to modernize the financial system legal framework, it addressed securities markets and financial market participants. It also reformed the Commerce Code, including shareholders and creditors' rights protection. However, the laws and regulations still need significant improvement, and many provisions do not follow international standards. Nevertheless, there is insufficient publicly available information to fully assess Algeria's compliance with the International Organization of Securities Commissions' Principles of Securities Regulation.

General Overview

According to the World Bank's 2004 Financial Sector Assessment (FSA), the securities markets in Algeria are "virtually non-existent" (p. 9). While there have been efforts to establish a regulatory framework to license and supervise market participants and build an infrastructure, there is practically no trading on the primary and secondary markets. The FSA indicates that significant improvements must be made to the regulatory framework, disclosure of financial information, and settlement systems before the securities markets will grow. It points that there have been developments in the securities markets exemplified by the introduction of an independent regulatory authority and a central depository. The World Bank's 2007 Project Completion Report notes that in 1997 the Algerian government launched a financial sector development program, in part aimed at improving the securities market and other non-bank financial instruments. Financial assistance had been obtained to fund the development of the securities market infrastructure, in particular the Securities Commission (COSOB), regulatory framework, secondary market for government securities, and the stock exchange.

Investors are discouraged from participation in the securities market because it is constricted and lacks liquidity, as indicated in the 2004 World Bank FSA. The securities market is inefficient and investors incur high transaction costs. Regulations, including minority shareholder rights are unclear. Also, the judiciary is weak, there is little compliance with financial accounting standards, and disclosure requirements are insufficient. Neither private nor public companies are willing to issue stocks, for fear of losing control and money, respectively, which further incites investor mistrust in the stock market. In addition, to spur the securities markets growth, the authorities need to go beyond creating treasury instruments and establishing a technical infrastructure, to develop an active and efficient money market and professional public debt management. The FSA suggests that authorities should be actively involved in encouraging the issuance of bond by public enterprises to increase liquidity and offer investors, businesses and banks more investment options.

The 2004 World Bank FSA indicates that in the government's efforts to modernize the financial system legal framework, it addressed securities markets and financial market participants and reformed the Commerce Code, including shareholders and creditors' rights protection. The Code of Commerce applies to all market participants involved in stock market operations. However, in its 2004 FSA, the World bank reports that the laws and regulations still need significant improvement and many provisions do not follow international standards. It notes that the laws for corporate governance, bankruptcy, mergers and acquisitions, and life insurance diverge most from international standards. There are also deficiencies in the enforcement of the legal framework. According to the African Development Bank's (ADB) 2006 report on Algeria, the securities markets regulator is the Stock Exchange and Surveillance Commission - Commission d'Organisation et de Surveillance des Operations de Bourse (COSOB). It is responsible for supervising the stock exchange and bond market and establishes the rules for the stock exchange. Its primary goals are to protect public savings in securities, conduct market surveillance, and promote transparency.

In Algeria, 93 percent of total financial system assets can be attributed to the banking sector, which dominates the financial system, as noted in the 2004 World Bank FSA. The Algerian stock exchange was established in 1993 and became operational in 1993. However, there are only three stocks listed on the exchange. A treasury bond market opened in 1995 and authorized 13 primary dealers. However, the U.S. Department of Commerce reports in its 2007 Doing Business Guide that there are eleven state-owned enterprises that are expected to start trading on the stock exchange as part of the government's privatization program. The Organization for Economic Development's 2006 report conveys that the total share value of the stock exchange is 0.25 percent of GDP. The bond market is worth 100 billion dinars, which is approximately 1 percent of the 2006 GDP. However the bonds are not quoted on the stock exchange. The 2004 World Bank FSA indicates that there are 5 intermediaries. The central depository, Algerie Clearing, was established in 2004 and is in line with international standards. An open-ended mutual fund had been established, but at the time of the 2004 FSA had not yet begun operations. The World Bank's 2007 Project Completion Report indicates that a real time payment system was implemented in accordance with international standards. The Commission for Organizing and Surveying Market Operations (COSOB) is an ordinary member of the International Organization of Securities Commissions (IOSCO), according to the IOSCO website.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

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According to the ADB's 2006 report on Algeria, the COSOB is responsible for supervising the stock exchange and bond market, and establishes the rules for the stock exchange. Its primary goals are to protect public savings in securities, market surveillance, and promote transparency. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

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The 2004 World Bank FSA reports that the COSOB is independent. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

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According to the 2004 World Bank FSA, there are deficiencies in the enforcement of the legal framework. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

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See Principle 9.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

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According to the 2004 World Bank FSA, Algeria does not have requirements for the frequent reporting of reliable data to securities holders by the company. As noted in the International Monetary Fund's (IMF) 2004 Financial System Stability Assessment (FSSA), the exposure and financial condition of banks is difficult to assess due to inadequate accounting systems. Furthermore accounting standards do not require the preparation of consolidated financial statements, and financial statements are often not submitted to the supervisory authorities in a timely manner. The chart of accounts also needs to be completed. The IMF report recommends ensuring the timely delivery of documents to the supervisory authorities, and involving external auditors in accounting controls. It further advises updating the chart of accounts. As a follow-up to the IMF's 2004 FSSA recommendations, accounting systems are in progress and implementation of the accounting reform project is planned for end of 2007, as stated in the IMF's 2004 Article IV Consultation report. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

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According to the World Bank's 2004 FSA, issues related to corporate governance and shareholder rights have not been raised so far in Algeria. Per the same report, although shareholder rights seem to be well-protected, the absence of regulation on corporate governance weakens the protection of minority shareholders. In its 2004 FSSA, the IMF notes that rights of shareholders have not been assessed because Algeria lacks a modern bankruptcy framework, and there is no distinction between ownership and control in state and family-based companies. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

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According to the 2004 FSSA conducted by the IMF, "local accounting norms and regulations, some of which date back to the command economy, are overly vague and financial statements fail to give an accurate and fair view of company performance" (p. 6). Further, Algerian accounting practices do not require the preparation of consolidated financial statements and accounting treatment for a number of important transactions has not been laid out. Also, compliance with local standards is not effectively enforced and there is an absence of a framework for sanctions and penalties. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

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The 2004 World Bank FSA reports that there have been significant efforts to develop regulation for licensing market participants. Brokers have been licensed. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

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The 2006 ADB report indicates that the COSOB is responsible for the oversight of the stock exchange and bond market. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

27. Regulation should promote transparency of trading.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

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There is insufficient publicly available information addressing Algeria's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

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The 2004 World Bank FSA indicates that the central depository, Algerie Clearing, was established in 2004 and is in line with international standards. The World Bank's 2007 Project Completion Report indicates that a real time payment system was implemented in accordance with international standards. However, there is insufficient publicly available information addressing Algeria's compliance with this principle.