Prior to 2015, non-resident foreign investors could not directly invest in the Saudi stock exchange; they were restricted to swap transactions with CMA-authorised persons whereby the authorised person owned the shares and the foreign investor was entitled to the economic benefits. This policy changed with the introduction of the CMA’s Rules for Qualified Foreign Financial Institutions Investment in Listed Securities. These rules, as subsequently amended, permit foreign banks, brokerage and securities firms, insurance companies, governments and government-related entities, and investment funds to make direct investments as QFIs. QFIs must be approved by a CMA-authorised person, licensed or incorporated in an acceptable jurisdiction, and, other than government-related entities, have assets under management or custody of at least USD $500 million.
The CMA’s QFI Rules do not apply to citizens of the Cooperation Council for the Arab States of the Gulf countries (“GCC”), i.e. natural persons who are GCC citizens and legal entities majority-owned by GCC citizens and incorporated in the GCC.
Although QFIs may invest in Saudi-listed securities, including participating in IPOs, there are continuing restrictions on foreign investment:
In June 2019, the CMA issued its Instructions for the Foreign Strategic Investors Ownership in Listed Companies. Therein, foreign strategic Investors must (i) be incorporated or licensed in a country that applies regulatory and supervisory measures similar to those applied by the CMA or that are accepted by the CMA, and (ii) aim through a direct shareholding to contribute in promoting the financial or operational performance of a listed company. Such investors are exempt from the QFI Rules, including its ownership restrictions (but not any such restrictions imposed by other applicable authorities), but may not dispose of their shares for two years. The concept of foreign strategic ownership is relatively new, so the CMA’s approach remains to be seen in practice. At present, the only foreign strategic investors publicly disclosed on the Tadawul are for banks and insurance companies (for example, HSBC group holds a 29.9% stake in the Saudi British Bank.