Capital Market Authority seeking public feedback on direct foreign investment draft rules

24 days to go Friday 22nd August 2014 Capital Market Authority seeking public feedback on direct foreign investment draft rules Daily Cover SAUDI ARABIA: The Capital Market Authority of Saudi Arabia (CMA) has released a draft document proposing rules regarding the opening of the country’s capital market to direct foreign investment. The draft, which will be available to the public on the regulator’s website for the duration of the three-month consultation period, outlines the limits that will be set on foreign investors seeking to access Saudi’s exchange, which has a market capitalization of US$580 billion. The proposal suggests that foreign investors would need to meet a series of requirements and conditions for registration, in order to qualify for the opportunity to invest. The status of qualified foreign investors (QFIs) would be limited to licensed banks, brokerage and securities firms, fund managers or insurance companies, with a minimum in assets under management (AUM) of SAR18.75 billion (US$5 billion) and at least five years of experience in investment and securities. The text states however, that the minimum AUM required may be reduced by the CMA to SAR11.25 billion (US$3 billion). Article 21 of the draft puts forward the proposed investment limits, with a 5% limit of ownership in any single stock by QFIs and a maximum proportion of shares in a single stock owned by QFIs to be capped at 20%. Given that investors outside the GCC may currently only access the market through equity swaps and exchange-traded funds, the draft guidelines also take this into account stating: “The maximum proportion of the issued share of any particular issuer whose shares are listed that may be owned by all foreign investors (in all categories, whether residents or non-residents) in aggregate is 49%, including interests under swaps.” The maximum proportion of the issued share by all listed companies that may be owned by QFIs has been put forward at 10% in market value, also including any interests under swaps; a figure that industry pundits have observed may disappoint foreign investors keen in tapping the liquid Saudi market. The Tadawul All Share Index has gained 26% so far this year, closing at 10,734.76 on the 21st August, the strongest level since January 2008. The CMA has stated the market will be opened to foreigner investors in 2015, with access anticipated in the first half. 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