Saudi Arabia loosens rules governing qualified foreign institutional investors

By bne IntelliNews May 4, 2016

Saudi Arabia’s Capital Market Authority, the market regulator, loosened the rules governing investment by foreign institutions into the country’s stock market to expand the institutional investor base ahead of planned major privatizations.

CMA licensed Qualified Foreign Institutions (QFI) would be allowed to invest directly into the stock market. The threshold for total global assets under management for QFIs to be eligible to invest in the Saudi market would be lowered to SAR3.75bn ($1bn) down from SAR18.75bn. New types of foreign financial institutions would be eligible to invest into the market including sovereign wealth funds, university endowments and others.

In addition, each investor under the QFI scheme would be allowed to own a stake of just below 10% of a single company’s shares. While in the past, all QFIs combined with their affiliates could own a maximum of 5% of a listed company’s shares. The combined ownership of all foreign investors whether resident or non-resident would be limited to 49% of the shares of any single firm to ensure majority ownership to domestic investors. However, a previous rule capping combined ownership by foreign institutions to 10% of the market’s entire capitalization has been scrapped.

Moreover, the CMA board signaled its intention to allow the introduction of securities lending and covered short selling to the stock market broadening investors’ hedging options. It will also allow settlement of trades within two working days of execution to facilitate the entry of foreign investors who previously had to settle on the same day.

However, the CMA held back on the timing of implementation and the release of executive regulation of the amended QFI rules stating its intention to publish them by the end of the first half of 2017.

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