Amman financial market afm

What Is Amman Financial Market (AFM)?

The Amman Financial Market (AFM) was the precursor to Jordan's modern capital market, established to regulate and facilitate the trading of securities in the country. Operating from 1978 until 1999, the Amman Financial Market served a dual role, functioning both as a stock exchange and a regulatory authority for the nascent Jordanian capital market. Its establishment aimed to foster economic growth by providing an organized venue for companies to raise capital and for investors to trade corporate shares and bonds, enhancing market liquidity and transparency.

History and Origin

The roots of securities trading in Jordan predate the formal establishment of a market, with public shareholding companies like Arab Bank being formed and their shares traded as early as the 1930s. The issuance of corporate bonds also began in the early 1960s, leading to an unorganized market handled by non-specialized offices. Recognizing the need for a regulated system to ensure fair and efficient trading and protect small savers, the Jordanian government began to explore establishing an organized market. Extensive studies, including collaboration with the International Finance Corporation (IFC) of the World Bank, were conducted in the mid-1970s.¹³ These efforts culminated in Temporary Law No. 31 of 1976, which led to the creation of the Amman Financial Market. The AFM officially commenced operations on January 1, 1978.¹²,¹¹

For over two decades, the Amman Financial Market facilitated the growth of Jordan's securities industry. However, by the late 1990s, the global financial landscape was evolving, emphasizing the separation of regulatory and operational functions within capital markets to align with international standards. This led to a significant restructuring of Jordan's capital market. In 1997, Securities Law No. 23 was enacted, which effectively dissolved the Amman Financial Market and led to the establishment of three distinct entities: the Jordan Securities Commission (JSC), the Amman Stock Exchange (ASE), and the Securities Depository Center (SDC).¹⁰,⁹ The Amman Stock Exchange was formally established in March 1999 as the direct successor to the trading functions of the Amman Financial Market.⁸,⁷

Key Takeaways

• The Amman Financial Market (AFM) was Jordan's first organized securities market, operating from 1978 to 1999.
• It initially combined the roles of both a stock exchange and a regulatory body.
• The AFM was instrumental in developing the early stages of Jordan's capital market.
• Its functions were later separated into distinct entities: the Jordan Securities Commission (JSC), the Amman Stock Exchange (ASE), and the Securities Depository Center (SDC) in 1999.
• The transition reflected a move towards international best practices in securities regulation and market structure.

Interpreting the Amman Financial Market (AFM)

Understanding the Amman Financial Market primarily involves appreciating its foundational role in Jordan's financial history. As a combined exchange and regulator, the Amman Financial Market's performance reflected the overall health and activity of the Jordanian economy during its operational period. Key metrics for evaluating its historical significance would include the growth in market capitalization of listed companies, the increasing trading volume of securities, and the number of companies listed. For instance, the number of listed companies on the AFM grew from 66 in 1978 to 152 by the end of 1999, and market capitalization significantly increased over the same period.⁶ The evolution of the Amman Financial Market highlighted the country's commitment to fostering an organized financial ecosystem.

Hypothetical Example

Imagine a Jordanian family in the 1980s wishing to invest their savings. Before the Amman Financial Market, they might have relied on informal channels or direct negotiations to buy shares in companies. With the establishment of the Amman Financial Market, they could now approach one of the licensed brokerage firms that were members of the AFM. If they wanted to buy shares in a prominent Jordanian industrial company, the broker would execute the order on the AFM floor, where prices were determined by the interplay of supply and demand. This process provided a more structured, transparent, and accessible way for ordinary citizens to participate in the secondary market and invest in the national economy.

Practical Applications

While the Amman Financial Market no longer exists in its original form, its legacy continues to impact Jordan's financial landscape. Its establishment laid the groundwork for the modern capital market infrastructure. Today, the Amman Stock Exchange (ASE), the direct successor to the AFM's trading functions, serves as the primary marketplace for trading securities in Jordan. The market's current operations are guided by the principles of market efficiency and investor protection, which were nascent goals during the AFM's era. The Jordan Securities Commission (JSC), which inherited the regulatory responsibilities of the Amman Financial Market, now oversees the entire Jordanian capital market, issuing legislation, ensuring transparency and disclosure, and protecting investors.⁵,⁴ The Amman Stock Exchange is also a full member of the World Federation of Exchanges, demonstrating Jordan's integration into global financial standards., world-exchanges.org

Limitations and Criticisms

The primary limitation of the Amman Financial Market, which ultimately led to its restructuring, was its dual role as both a market operator and a regulator. This structure, common in many emerging markets during earlier periods, could present challenges related to conflicts of interest and the efficient allocation of resources. International best practices in securities regulation advocate for a clear separation of these functions to enhance transparency, promote fairness, and ensure independent oversight. The 1997 Securities Law addressed this by creating the Jordan Securities Commission (JSC) as an independent regulator and the Amman Stock Exchange (ASE) as the market operator, ensuring a clearer division of responsibilities and greater adherence to global standards for capital market governance.³, jsc.gov.jo

Amman Financial Market (AFM) vs. Amman Stock Exchange (ASE)

The key distinction between the Amman Financial Market (AFM) and the Amman Stock Exchange (ASE)) lies in their structure and functions. The Amman Financial Market, established in 1978, operated as a single entity that combined the responsibilities of both facilitating the trading of financial instruments and regulating market activities. This meant it was responsible for listing securities, overseeing trading, and enforcing rules.

In contrast, the Amman Stock Exchange, created in March 1999, is solely the trading venue. Its role is to operate, manage, and develop the markets for securities, commodities, and derivatives.² The regulatory and oversight functions previously held by the AFM were transferred to a separate, independent body, the Jordan Securities Commission (JSC), which was established in 1997. This separation brought Jordan's capital market in line with international regulatory frameworks, which generally mandate distinct roles for market operations and market regulation to prevent conflicts of interest and enhance investor protection. For a detailed historical overview of this transition, the Amman Stock Exchange provides historical context on its official website. ase.com.jo

FAQs

What was the main purpose of the Amman Financial Market?

The main purpose of the Amman Financial Market (AFM) was to provide an organized and regulated environment for the trading of securities in Jordan, thereby facilitating capital formation for businesses and offering investment opportunities for individuals. It aimed to bring structure to an previously unorganized market.

When did the Amman Financial Market cease to exist?

The Amman Financial Market (AFM) effectively ceased to exist in its original form in 1999, following the enactment of the Securities Law in 1997. Its functions were then distributed among three new independent entities: the Jordan Securities Commission (JSC), the Amman Stock Exchange (ASE), and the Securities Depository Center (SDC).¹

How did the Amman Financial Market contribute to Jordan's economy?

The Amman Financial Market played a crucial role in mobilizing domestic savings for investment in productive sectors, enhancing liquidity for companies, and providing a platform for price discovery. Its operation stimulated economic activity by enabling public shareholding companies to raise capital and offering investors structured avenues for participation in the capital market.