CMA approves rules for foreign investment in securities
The Capital Market Authority (CMA) approved the rules for foreign investment in securities. It also endorsed amendments to the investment accounts instructions, amendments to the implementing regulation of the Companies Law for listed joint stock companies and amendments to the glossary of defined terms used in the regulations and rules of the Capital Market Authority, which shall be effective as of the date of their publications.
The approval of the rules, instructions and glossary aim to develop the provisions regulating foreign investment in securities, facilitate access to the regulatory frames governing foreign investment in securities by collecting the regulating provisions in a single regulatory document, as well as facilitating qualified foreign investors’ (QFIs) entry procedures to invest in the Saudi capital market.
The last amendments comprised considering facilitating the QFIs’ requirements, facilitating disclosure requirements and continuous obligations to ease Saudi capital market entry with the aim of minimizing the differences between QFIs and other investor categories in the Saudi market.
The amendments also comprised developing the qualification conditions that must be met by the QFI to invest in the shares listed in the main market and removing the requirements on application for qualification and QFI’s assessment agreement. The approved rules only requiring the QFI to open an investment account in accordance with the Investment Accounts Instructions issued by CMA. This is to ensure the obligation of the capital market institution to make sure that the QFI is meeting all relevant qualification conditions.
The amendments 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.
The amendments stipulate to add a new channel for foreign investment in securities listed on the main market by allowing all foreign natural and legal persons to invest in securities listed on the main market through discretionary portfolios management by capital market institutions.
As of its effective date, the rules shall replace the Rules for Qualified Foreign Financial Institutions Investment in Listed Securities, Instructions for the Foreign Strategic Investors' Ownership in Listed Companies and the Guidance Note for the Investment of Non-Resident Foreigners in the Parallel Market.
The approval of these rules is expected to have a positive impact on boosting liquidity in the Saudi market, deepening and raising its attractiveness, and enhancing its global status. The rules will also contribute to the transformation of knowledge and experiences in local capital institutions and investors, thereby enhancing the role played by institutional investors in the Saudi capital market.
It is worth mentioning that the CMA issued the updated edition of the rules in 2018, which resulted in a 179 percent increase in the number of QFIs from 2018 to 2022 . In addition, the foreign investors’ ownership ratio of the free float total market value increased from 3.77 percent in 2018 to 14.21 percent by the end of 2022.
The approval of the rules came after CMA has published the Amended Draft Rules for Foreign Investment in Securities on the Unified Electronic Platform for Consulting the Public and Government Entities (Public Consultation Platform) affiliated with the National Competitiveness Center (NCC), and the CMA's website for public consultation for a period of 30 calendar days.
Within its Vision 2030, the Kingdom aims to be an attractive and instigating investment destination to continue expanding, as it has developed structural reforms in the financial and economic aspects that have contributed to raising economic growth rates and maintaining financial stability and sustainability, which in turn, helps in attracting foreign investments.
Through its strategic plan, the CMA seeks to position the Saudi capital market as main market in the Middle East and one of the leaders financial markets in the world, and to be an advanced market and attractive to domestic and foreign investment, enabling it to play a pivotal role in developing the economy and diversifying its sources of income in line with the Kingdom’s Vision 2030.
The last amendments comprised considering facilitating the QFIs’ requirements, facilitating disclosure requirements and continuous obligations to ease Saudi capital market entry with the aim of minimizing the differences between QFIs and other investor categories in the Saudi market.
The amendments also comprised developing the qualification conditions that must be met by the QFI to invest in the shares listed in the main market and removing the requirements on application for qualification and QFI’s assessment agreement. The approved rules only requiring the QFI to open an investment account in accordance with the Investment Accounts Instructions issued by CMA. This is to ensure the obligation of the capital market institution to make sure that the QFI is meeting all relevant qualification conditions.
The amendments 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.
The amendments stipulate to add a new channel for foreign investment in securities listed on the main market by allowing all foreign natural and legal persons to invest in securities listed on the main market through discretionary portfolios management by capital market institutions.
As of its effective date, the rules shall replace the Rules for Qualified Foreign Financial Institutions Investment in Listed Securities, Instructions for the Foreign Strategic Investors' Ownership in Listed Companies and the Guidance Note for the Investment of Non-Resident Foreigners in the Parallel Market.
The approval of these rules is expected to have a positive impact on boosting liquidity in the Saudi market, deepening and raising its attractiveness, and enhancing its global status. The rules will also contribute to the transformation of knowledge and experiences in local capital institutions and investors, thereby enhancing the role played by institutional investors in the Saudi capital market.
It is worth mentioning that the CMA issued the updated edition of the rules in 2018, which resulted in a 179 percent increase in the number of QFIs from 2018 to 2022 . In addition, the foreign investors’ ownership ratio of the free float total market value increased from 3.77 percent in 2018 to 14.21 percent by the end of 2022.
The approval of the rules came after CMA has published the Amended Draft Rules for Foreign Investment in Securities on the Unified Electronic Platform for Consulting the Public and Government Entities (Public Consultation Platform) affiliated with the National Competitiveness Center (NCC), and the CMA's website for public consultation for a period of 30 calendar days.
Within its Vision 2030, the Kingdom aims to be an attractive and instigating investment destination to continue expanding, as it has developed structural reforms in the financial and economic aspects that have contributed to raising economic growth rates and maintaining financial stability and sustainability, which in turn, helps in attracting foreign investments.
Through its strategic plan, the CMA seeks to position the Saudi capital market as main market in the Middle East and one of the leaders financial markets in the world, and to be an advanced market and attractive to domestic and foreign investment, enabling it to play a pivotal role in developing the economy and diversifying its sources of income in line with the Kingdom’s Vision 2030.