The CMA issued its Rules for Foreign Investment in Securities (“Rules”). These rules significantly liberalise the parameters for foreign investors investing in securities listed on the Saudi Stock Exchange (Tadawul).
Investments by Foreign Investors – Categories
- Article 6 of the Rules state that investments of non-residing foreign investors in shares listed on the Main Market can be made by the following categories of investors:
- Qualified Foreign Investor (QFI);
- Foreign Strategic Investor;
- Ultimate beneficiary in a swap agreement with a capital market institution (CMI); and
- Foreign natural or legal person, which is a client of a CMI authorized to conduct managing activity and where such CMI has been appointed as a discretionary investment manager of that client.
The significant changes included the removal of a formal assessment process for QFIs, expanding the number of foreign investor categories that can qualify as a QFI without meeting the specified monetary threshold and adding a new channel for foreign investment in securities by enabling all foreign natural and legal persons to invest in securities listed on the main market through discretionary portfolios management by CMIs.
Qualified Foreign Investors – New Qualifying Conditions
There has been a significant widening of the definition of a QFI under the Rules. While the earlier requirement of having assets under its management or custody of SAR 1,875,000,000 remains in place, there are a number of instances where this requirement does not apply. Under Article 7(b) of the Rules, the minimum assets under management condition does not apply to the following categories of investors:
- Pension funds.
- Endowment funds for scientific, educational, and cultural purposes, including university endowments fund.
- A market maker’s client.
- Government entities, central banks, and investment funds fully owned (directly or indirectly) by a government entity, including sovereign funds and funds which take the form of pension and endowments funds; and
- International organizations of which the Kingdom is a member and their affiliated institutions.
There does not appear to be any requirement to undergo an assessment process as there was under the previous Rules for Qualified Foreign Financial Institutions Investment in Listed Securities (issued under CMA Resolution Number 1-42-2015). Previously, CMIs were entering into assessment agreements with QFIs in order for the foreign investor to qualify.
Furthermore, the Rules clarify that a QFI may engage with foreign investment firms, foreign portfolio managers and custodians or advisors for the purposes of investing in listed securities. Foreign investment firms can provide asset management, custody services and advise QFIs in respect of securities listed on the Tadawul without any authorisation from the CMA.
Swaps Agreement
The Rules included developing conditions on the investment of the non-resident foreign investors in listed securities through Swap Agreements, including removing the requirement on the duration of such swap agreements, as well as removing the requirement to notify the CMA prior to entering into a Swap Agreement.
How Al Tamimi & Company can help?
Al Tamimi & Company Banking & Finance team are equipped to provide advice and guidance to investors in navigating the recently liberalized rules for foreign investment in securities listed on the Saudi Stock Exchange.
Key Contacts
Rafiq Jaffer
Partner, Banking & Finance
(Bahrain, KSA and UAE)
r.jaffer@tamimi.com