VZCZCXYZ0000
RR RUEHWEB

DE RUEHRB #0275/01 0881702
ZNR UUUUU ZZH
R 281702Z MAR 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 8321
INFO RUEHAS/AMEMBASSY ALGIERS 4724
RUEHEG/AMEMBASSY CAIRO 2324
RUEHFR/AMEMBASSY PARIS 4967
RUEHTU/AMEMBASSY TUNIS 9561
RUEHCL/AMCONSUL CASABLANCA 3987
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS RABAT 000275 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
CAIRO FOR TREASURY ATTACHE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV MO
SUBJECT: MOROCCO'S MARKET WATCHDOG BARES ITS FANGS 
 
 
¶1. (SBU) Summary: Morocco's Securities and Exchange 
Commission, the Conseil Deontologique des Valeurs Mobilieres 
(CDVM), for the first time in its fifteen-year history moved 
this month to impose order in Moroccan securities markets by 
issuing sanctions and warnings to a range of brokers who 
violated market procedures during several recent high profile 
initial public offerings.  One firm, Upline Securities, was 
ordered to pay a 10 million MAD fine and faces loss of its 
license to act as a depository institution.  Three other 
firms received warnings of varying severity.  Given the 
prevalence of the sanctioned activities in recent years, 
commentary has been mixed on the merits of the specific 
punishments, but observers agree that a more active and 
independent CDVM is a prerequisite for further deepening and 
strengthening of Moroccan financial markets.  End Summary. 
 
¶2. (SBU) Morocco's long bull market, which has seen the 
exchange's capitalization double over the last two years, has 
been fed by a series of high profile public offerings, which 
have skyrocketed in value on their introduction into the 
market.  These offerings have been surrounded by widespread 
rumors of favoritism in allocation of the initial blocks of 
shares, as well as of shady dealings by brokerages.  While 
the CDVM has investigated such cases in the past, never 
before had it taken action to sanction offenders, despite 
being publicly encouraged to do so by Central Bank Governor 
Abdellatif Jouahri, among others.  That changed on March 17, 
however, with announcement that the Council had fined Upline 
Securities for irregularities surrounding last year's initial 
public offering for real estate developer CGI.  The financial 
sanction was the first imposed since Morocco's securities 
markets were reformed in the early 1990s, and at 10 million 
MAD (or 1.28 million USD) was an eye-catching sum.  More 
significantly, the CDVM asked that Upline's license as a 
despository institution be lifted, threatening its future 
operations.  Three other firms-- Safa-Bourse, Attijari 
Intermediation, and BMCE Capital Bourse received warnings of 
varying severity, with the most serious going to Safa and the 
least serious to BMCE. 
 
¶3. (SBU) Rather than favoritism in allocating blocks of 
shares, the CDVM's allegations relate to the brokerages' 
failure to carry out their responsibilities as 
intermediaries.  The Council alleges that the firms failed to 
verify the identity of bidders and to ensure that they had 
deposited sufficient funds to cover their positions. 
Observers note that in the run-up to the CGI offering, which 
was expected to be particularly lucrative, foreign investors 
had constituted a range of hedge funds which registered to 
participate.  On securing initial blocks of shares, they 
quickly turned around and resold them for a quick profit.  To 
different degrees, as reflected in the severity of their 
punishment, given their expectation that the initial 
purchasers' positions would be quickly liquidated, the 
brokerages failed to ensure that their clients had funds to 
cover their positions.  What aggravated Upline's case, CDVM 
Dounia Taarija has said in public interviews, is the fact 
that it used funds deposited by other clients to settle these 
accounts.  In so doing, she charged, Upline had violated its 
fiduciary responsibilities as a depository institution, in 
that "unlike banks, brokers don't have the right to 
"globalize the deposits they have received and use them for 
other purposes." 
 
¶4. (SBU) If observers agree that a strong and independent 
market watchdog is an essential prerequisite for further 
strengthening of Morocco's capital markets, the specific 
sanctions applied in this case have had a mixed reaction. 
One of Morocco's leading French weeklies, "Le Journal Hebdo," 
which has given extensive coverage in recent weeks to 
Upline's troubled relationship with the CDVM, has been 
particularly critical, arguing that the CDVM has "Hit Hard 
instead of Hitting Fairly" and thereby exercised a "selective 
coercion."  It notes that the same practices were widespread 
during other recent oversubscribed public offerings, 
including for Maroc Telecom and Addoha, hinting obliquely 
that the CDVM is seeking to settle scores with the firm for 
its willingness to air the matter in public. 
 
¶5. (SBU) "Le Journal" and other observers also highlight the 
fact that the problems in Moroccan markets have stemmed not 
just from shady practices, but from "shortcomings" in 
regulations governing Morocco's security markets.  They argue 
that the purchase of stocks on credits is allowed virtually 
everywhere in the world except Morocco, and as a result the 
law has been largely ignored-- trading on credit, one broker 
told "Le Journal," is "like alcohol, tolerated, but not 
legal."  The CDVM has also held back from other steps that 
some believe would increase the market's transparency-- such 
as requiring that all transactions occur on the central 
exchange, and thereby eliminating the secondary market where 
blocks of shares often trade hands for prices below those 
quoted on the central exchange.  "Le Journal" and others thus 
question whether Upline really was a particularly bad actor, 
and have contrasted its fate with that of CFG securities, 
which also handled a large volume of the transaction but 
escaped unscathed.  (For their part, CFG executives note that 
they were not part of the syndicate that handled foreign 
hedge fund shares, and were fully cleared by the Council of 
any wrongdoing.) 
 
¶6. (SBU) Comment: Whatever the merits of the specific 
punishments, which undoubtedly will be the subject of 
litigation in coming weeks, a more active market watchdog is 
good news for Moroccan securities markets.  Central Bank 
Governor Jouahri and others have called repeatedly in recent 
months for the council to not just study abuses, but to 
actually sanction offenders.  By doing so, the CDVM has put 
market operators on notice and begun the process of 
increasing the market's transparency and instilling greater 
market discipline.  Our contacts in the field note that the 
institution has been ready to take this step for some time, 
but was held back by its political masters, and in particular 
the former Minister of Finance, who felt Moroccan markets 
were not ready for such a step.  Under new Minister of 
Finance Mezouar, who chaired the council that approved the 
penalties, Moroccan market regulation has clearly turned a 
new page.  End Comment. 
 
 
***************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
***************************************** 
 
Riley