Kuwait's stock exchange will clamp down on trading 'misbehaviour' and offer investors a fairer playing field in the biggest overhaul of its trading system in nearly two decades, a senior bourse official said on Monday.

The exchange plans to introduce the 'X-stream' trading system on May 13, backed by The Nasdaq OMX Group. It will pave the way for trade in financial instruments such as Islamic bonds and exchange-traded funds (ETFs).

It will also keep a closer eye on possible cases of insider trading or price manipulation using an integrated surveillance system.

'I hope that in the first quarter of next year we will switch on the derivatives part of the X-stream system. We will start with Kuwaiti derivatives,' Kuwait Stock Exchange Projects Manager Issam Alusaimi told Reuters in an interview.

The 'Kuwaiti derivatives' include futures and options now traded on third-party systems. International products such as Islamic bonds and ETFs will be introduced later, he said.

One of the aims of the new platform, which cost around 18.3 million dinars ($65.6 million), is to stamp out dubious practices in one of the region's oldest exchanges.

A surveillance system will collect real-time data and analyse it for any signs of wrongdoing. 

'In every exchange there is always misbehaviour of traders, whether it is based on insider information, or speculation... Every country has unique players. We are going to tune our surveillance system to catch the Kuwaiti behaviour,' Alusaimi said.

The new platform will scrap the lots system, allowing investors to trade as little as one share at a time rather than being forced to make bulk orders and levelling the field, he said. It will also adopt an auction for closing prices.

Investors will be able to place orders for up to 90 days in the future rather than requiring trades to be executed on the same day. The new system will open up the exchange for greater trade capacity and Alusaimi said he hoped the platform would enliven trade.

The exchange sometimes only sees 3,000-4,000 trades a session while 27,000 is a top day, Alusaimi said.

'We have to put a projection over five years. We do not want to run out of gas after one year... This is in anticipation of increased trading after we do away with the lots,' he said.

Blue-chip index

The stock exchange, which the government plans to privatise, will also introduce a blue-chip index of 15 top companies based on trade volume or market capitalisation.

Kuwait is home to some of the largest investment groups in the Gulf region such as Kuwait Projects Co (Kipco) and Global Investment House.

The bourse suffered heavy losses during the global financial crisis spurring the introduction of a market watchdog, which has recently ordered several companies to delist after they failed to report earnings on time.

Starting as a fledgling, unregulated market in the 1960s, the exchange was formally set up in 1984 and introduced its first trading electronic system in 1995. The new X-stream platform is the biggest change since then.

Users will also get access to data via a subscription-based website rather than having to rely on the old internal system or telephones.

'The 1995 system was matching the requirements of that time - now it has to change,' Alusaimi said. – Reuters