Further to the Saudi Arabian Council of Ministers decision in its meeting held on 21 of July 2014, which permitted the Capital Market Authority (the CMA) to allow foreign financial institutions to trade shares listed on the Saudi Stock Exchange (the Tadawul), at a time the CMA deems appropriate and pursuant to the regulations to be issued by the CMA, the CMA Board of Commissioners on 04 of May 2015 issued the Rules for Qualified Foreign Financial Institutions Investment in Listed Shares (the QFIs Rules).

Qualified Foreign Financial Institutions (the "QFFI") such as banks, brokerages, fund managers and insurance companies will be allowed to trade shares on Tadawul starting from June 15 2015. As expected the CMA adopted rules similar to other major emerging economies who have opened up their financial markets, including China as it opened up over a decade ago.  QFFI will be required to have a minimum of five years' experience and to apply for permission to invest on Tadawul. QFFI must have at least USD 5 billion of assets under management, although the CMA has the discretion to reduce this to USD 3 billion when it wishes.

QFIs Rules imposed the following ceilings on the investment of QFFI on Tadawul:

  • QFFI can own maximum of 10 percent of Tadawul's value;
  • Single QFFI can own no more than 5 percent of a listed company;
  • Total QFFI (and its client) ownership in a listed company cannot exceed 20 percent; and
  • All foreign ownership (QFFI and all categories, whether residents or non-residents, including interests under swaps) of a single company is restricted to 49 percent.

In case of non-compliance by the QFFI with some provisions of the QFIs Rules, the QFIs Rules empower the CMA to take any of the following actions:

  • Require the QFFI to provide such information, documents and/or written explanation as the CMA requires in respect of the matters giving rise to its consideration;
  • Require the QFFI or its representative, to attend before the CMA to answer questions and explain any matter the CMA considers relevant;
  • Carry out any enquiries that the CMA considers appropriate;
  • Take any steps to verify any information furnished by the QFFI, including by communicating with overseas regulatory authorities;
  • Suspend the QFFI's registration or prohibit the QFFI from dealing on behalf of one or more of its approved QFFI's clients for such period as the CMA requires;
  • Cancel the QFFI's registration, or withdraw the approval of any of its approved QFFI clients;
  • Prohibit the QFFI from dealing on behalf of one or more of the approved QFFI's clients in listed shares; and
  • Exercise any of its other powers under the Capital Market Law.

Moreover, the CMA may publish the identity of any QFFI whose registration has been suspended or revoked or whose approval has been withdrawn.

Tadawul is not on the MSCI Emerging Markets index as yet however the opening up of the Tadawul to QFFI certainly would increases the likelihood of Saudi Arabia's Tadawul being included in the MSCI Emerging Markets index in the near future.

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