Download Saudi Capital Market Overview

Saudi Capital Market Overview
Information
Memorandum for
Qualified Foreign Investors
Page 1 of 56
Table of Contents
Saudi Arabia as an Investment Market.................................................................................. 4
Market Operators and Provided Services.............................................................................. 5
Market Structure .................................................................................................................... 6
QFI: Saudi Arabia’s Scheme for Foreign Institutional Investors .......................................... 12
Enhancements to The Saudi Market ................................................................................... 17
QFI Application Guideline.................................................................................................... 21
Frequently Asked Questions on the Rules for Qualified Foreign Financial Institutions ....... 27
Contact Us .......................................................................................................................... 56
Page 2 of 56
The information contained in this document is for information purposes only and
does not constitute any offer, invitation, promotion, advice, recommendation or any
warranty or representation of any kind, whether provided explicitly or implicitly, and
should not be construed as legal, financial, tax or accounting advice or investment
recommendation.
This document and information contained herein may not be disclosed, copied,
reproduced or distributed to anyone without prior written consent of the Saudi Stock
Exchange.
Page 3 of 56
Saudi Arabia as an Investment Market
Saudi capital markets have a stable regulatory environment
Key Market Entities
Capital Market Authority (CMA)
Description

Responsible for regulating capital markets in
Saudi Arabia, including Tadawul
Determines the QFI rules as well as registers
QFI to participate in the market.

Ministry of Commerce and
Investment
Saudi Arabian Monetary
Authority (SAMA)
Page 4 of 56


Responsible for Companies Law
Responsible for regulating trade and its
development and expanding the private sector
and all relevant laws and rules


The national central bank
Regulator of the banking, insurance, and
other finance sectors in Saudi Arabia
Market Operators and Provided Services




Saudi Stock Exchange (Tadawul)

Sole authorized exchange in Saudi Arabia
The most liquid equity market in Middle East and
North Africa
Includes more than 170 publicly public listed
companies
The highest market capitalization in Middle East and
North Africa
Provide Trading Services:
Tadawul offers an array of services that benefit all types of
investors.
Today,
Tadawul
has
one
of
the
most
sophisticated trading platforms that creates a seamless
trading
experience
through
full
automation
and
processing. The trading platform has been designed to
serve multiple types of orders that should satisfy investors’
needs. Needless to say, Tadawul offers negotiated deals
for special deals and transactions


Sole authorized Depository Centre in Saudi Arabia
Provide Post Trade Services:
SDC offers plenty of post trade services that benefit
issuers, investors and members including depository
services, registry services for both listed and unlisted
companies, securities pledging, transfer of securities
Securities Depositories Centre
ownership, securities ownership restriction and release,
clearing & settlement related services, corporate actions,
(SDC)
consolidated reporting, asset servicing.
Post Trade
services also include Independent Custody Services
where the custodian is responsible for securing and
administering investor’s assets while the trading is
performed by separate trading members.
Page 5 of 56
Market Structure
Exchange Information
Item
Description
Currency
Saudi Riyal (SAR)
Time Zone
UTC + 3
Exchange and
Depository
The Saudi Stock Exchange (Tadawul) is a joint stock company and the
sole entity authorized in the Kingdom to act as the Securities Exchange
(the “Exchange”) carrying out listing and trading in securities. The
Securities Depository Centre (the “Centre”) (SDC), is a joint stock
company and sole entity for depository and registrar of listed securities,
responsible for deposit, transfer, clearing, settlement, and registry of
ownership of securities traded on the Exchange. The legal status, duties,
and responsibilities of the Exchange and Depository Center are explicitly
defined in the Capital Market Law (the “CML”) issued by Royal Decree
Number (M/30) dated June 16, 2003. The Exchange and the Centre are
also the official source of all market information. Tadawul affiliate
members of International Organization of Securities Commissions
(IOSCO), and a member of the World Federation of Exchanges, Arab
Federation of Exchanges (AFE) and Africa and Middle East Depositories
Association (AMEDA).
In 2015, Tadawul has successfully deployed NASDAQ’S X-Stream INET
trading system. The system is regarded among the top trading platforms
globally. Securities listed on Tadawul are traded by way of order
matching according to price, and then time priority. Transactions are
Trading System
executed through brokers, each on behalf of its clients or itself. Cash
availability is required for buy orders. Securities availability is required for
all sell orders. Trade finality and legal finality are simultaneously recorded
on the trading and depository and settlement systems.
Depository and
Settlement
System
Equator CSD by NASDAQ.
Surveillance
System
SMARTS Surveillance by NASDAQ.
Security
Identifiers
ISIN (International Securities Identification Number).
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Market Structure (cont’d)
Exchange Tradable Products:
Equities:
Opening Days
Opening
Settlement
Minimum
Max Total Trading
Times
Cycle
Lot
Commission*
Exchange Traded Instruments
Equities
Sunday Thursday
10:00– 15:00 T + 0
1 Share
15.5 bps
10:00– 15:00 T + 0
1 Right
12bps
(No Min)
Tradable Rights
Sunday Thursday
* Includes Brokerage, Tadawul and CMA components Tick Sizes
Price Bands
Tick Size
SAR 25.00 or Below
SAR 0.05
SAR 25.10 to 50.00
SAR 0.10
SAR 50.25 and above
SAR 0.25
Fluctuation Limits
Item
Description
Daily Upper Limit
+10% from previous day’s closing
Daily Lower Limit
-10% from previous day’s closing
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Market Structure (cont’d)
Market Indices
•
Tadawul All Share Index (TASI)
Tadawul Equity Market Structure will consist of 20 Sectors, that are based on the 2nd level
of the Global Industry Classification Standard (GICS). Below are the new sectors with their
relevant indices:
1. Energy Index
2. Materials Index
3. Capital Goods Index
4. Commercial & Professional Svc Index
5. Transportation Index
6. Consumer Durables & Apparel Index
7. Consumer Svc Index
8. Media Index
9. Retailing Index
10. Food & Staples Retailing Index
11. Food & Beverages Index
12. Health Care Equipment & Svc Index
13. Pharma, Biotech & Life Science Index
14. Banks Index
15. Diversified Financials Index
16. Insurance Index
17. Telecommunication Svc Index
18. Utilities Index
19. REITs Index
20. Real Estate Mgmt & Dev't Index
Moreover, Tadawul will launch its new market “Nomu” which will have the following Headline
Index:

Nomu – Parallel Market Index
Page 8 of 56
Market Structure (cont’d)
Real Estate Investment Traded Funds (REITS):
Real Estate Investment Traded Funds, or REITs, are financial instruments that allow all
types of investors to obtain investment exposure to the Real Estate Market. This is achieved
through collective ownership of constructed developed real estate qualified to generate
periodic and rental income. REITs can invest locally, regionally and globally, where the total
asset value outside the Kingdom shall not exceed 25% of the fund's total asset value. REITs
consist of units, where each unit represents ownership in the underlying real estate. REITs
are traded on the Exchange just like equities during trading hours. In addition, REITs are
required to distribute at least 90% of the fund’s net profits to the unit holders annually, as per
the instructions issued by the CMA.
With regards to control and supervision, similar to other investment vehicles, REITs adhere
to the rules and regulations issued by the CMA. REITs also abide by the high standards of
transparency and disclosure that are already applied in the current equity market.
Exchange Traded Instruments:
(REITS):
Opening
Days
PreMarket
Time
Opening
Settlement
Market
Minimum
Total Trading
Security
Times
Cycle
Making
Lot
Commission*
Format
REITS
Sunday Thursday
09:30–
09:59
10:00–
15:00
T+0
No Market
1 Unit
Makers
*Includes Brokerage, Tadawul and CMA components
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15.5 bps
Electronic
Form
Market Structure (cont’d)
Debt Market
Exchange Traded Instruments:
Sukuk and Bonds:
Opening
Days
PreMarket
Time
Opening Settlement
Times
Cycle
Market
Minimum
Making
Lot
Max Total
Trading
Commission*
Security
Format
Exchange Traded Instruments
Sukuk / Bonds
Sunday - 11:15– 11:30–
Thursday 11:29
15:00
T+2
No
Market
Makers
*Includes Brokerage, Tadawul and CMA components
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Depends
on Issue
10bps
(Min SAR500)
Electronic
Form
Market Structure (cont’d)
Exchange Traded Fund (ETF)
Exchange Traded Instruments:
ETFs:
Opening Days
Opening
Settlement
Minimum
Max Total Trading
Times
Cycle
Lot
Commission*
Exchange Traded Instruments
ETFs
Sunday
Thursday
-
10:00– 15:00 T + 0
* Includes Brokerage, Tadawul and CMA components
Page 11 of 56
1 Unit
12bps
(Min SAR12)
QFI: Saudi Arabia’s Scheme for Foreign Institutional
Investors
The objectives governing the outreach of the Saudi Capital Market have been
identified by the CMA in May 2015;
“
o
pening the Saudi Capital Market and allowing qualified foreign
financial institutions to invest in it does not focus on attracting capital or
liquidity to the market. However, it aims to achieve several objectives on
the short and long term as following:
1. Promote CMA’S efforts to increase institutional investment in the Saudi
Capital Market which would contribute to market stability and reduce high
volatility in prices through attracting the expertise of specialized foreign
investors, with long term investment goals in the local market.
2. Transfer the knowledge and expertise to the local investors and financial
institutions and to raise the level of professionalism of the market
participants by attracting highly professional experts.
3. Enhance the market efficiency and motivate the listed companies and the
specialized investment companies to raise their performance by improving
the level of transparency, financial information disclosure and governance
practices.
4. Strengthen the Saudi Capital market’s position to become a leading market.
In addition, to increase the opportunities of raising its rating to be classified
as an emerging market under the global indices, led by Morgan Stanley
Capital International (MSCI) index which many markets seek to be part of.
5. Raise the level of research, studies and evaluation done on the market in
general and on the listed companies in particular which would provide more
accurate information and more fair assessments.
1
(Capital Market Authority, 2015)
Page 12 of 56
”
1
QFI: Saudi Arabia’s Scheme for Foreign Institutional Investors (cont’d)
Eligibility Requirements for QFI Registration
The current criteria for foreign financial institutions seeking QFI registration are:
Type of financial institution: The QFI applicant must be a financial institution
that has a legal personality which falls within one of the entities mentioned below.
All QFI applicants; including government and investment funds, must be licensed
or regulated by a regulatory authority and incorporated in an approved jurisdiction

Bank: a financial institution that has a legal personality which engages in banking
business.

Brokerage and securities firm: a financial institution that has a legal personality which
engages in securities business, including portfolio managers.

Insurance company: a financial institution that has a legal personality which engages in
insurance business.

Government and Government related entities: central banks and investment fundsincluding sovereign funds and funds which take the form of pension and endowment
funds- fully owned (directly or indirectly) by a government fund.

Investment fund: means any of the following legal persons:
•
A pension fund in which its main objective is to collect fees or periodic contributions
from participants or for their interest, for the purpose of compensating them according
to a specific mechanism.
•
Endowment fund with the principle purpose of making grants to organizations,
institutions, or individuals for scientific, educational, cultural purposes, including
university endowments fund.
recognised by the CMA, as per article 6.A.2 and 6.a.3 of the Rules for Qualified
Foreign Financial Institutions Investment in Listed Securities (“QFI Rules”)

Size: For government entities, the minimum size is not applicable. For investment
funds, the minimum assets under management (AUM) owned or managed by the
fund itself or by its group, including assets owned or managed by its foreign
portfolio manager or its group, must be US$1 Bn. For others, assets owned
and/or managed by the applicant or its group must be at least US$1 Bn. 2

Investment experience: The applicant or affiliates must have engaged in
securities investment activities for a minimum of five years. Government and
investment funds are not subject to this requirement as per article 6.c.
2
Paragraph b of article 6.B.1 of the QFI Rules
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QFI: Saudi Arabia’s Scheme for Foreign Institutional Investors (cont’d)

Domicile: The foreign applicant must be registered in a jurisdiction on the
“Approved Domicile Country” list.
Approved Domicile Countries
Approved Domicile Countries
3
Australia
Greece
Palau*
Andorra*
Guernsey*
Peru
Anguilla*
Hong Kong
Poland
Aruba*
Hungary
Portugal
Austria
India
Qatar
Bahamas*
Indonesia
Russia
Bahrain
Ireland
Samoa*
Belgium
Isle of Man*
Seychelles*
Belize*
Italy
Singapore
Bermuda*
Japan
South Africa
Brazil
Jersey*
South Korea
British Virgin Islands*
Kuwait
Spain
Canada
Liechtenstein*
Sweden
Cayman Islands*
Luxemburg
Switzerland
China
Macao*
Taiwan
Colombia
Malaysia
Thailand
Cook Islands*
Mexico
Turkey
Cyprus*
Monaco*
Turks and Caicos Islands ∗
Czech Republic
Montserrat*
UAE
Denmark
Netherlands
United Kingdom
Egypt
Netherlands Antilles*
United States of America
Finland
New Zealand
Vanuatu*
France
Norway
Germany
Oman
3
(Capital Market Authority, 2016). List is subject to change.
* Are only for investment funds.
Page 14 of 56
Gibraltar*
Pakistan
QFI: Saudi Arabia’s Scheme for Foreign Institutional Investors (cont’d)
Investment Limitations 4 applicable to QFI investors
Effective 4 September, 2016 investment limits applicable to registered QFI investors
are:

Individual QFI investment cap per company: A QFI may not own 10% or more
of the shares of any issuer whose shares are listed, or convertible debt
instruments of the issuer.

Collective Foreign Investor cap per company: The maximum proportion of the
shares of any issuer whose shares are listed, or convertible debt instruments of
the issuer, that may be owned by all foreign investors (in all categories, whether
residents or non-residents) in aggregate is 49%.
Investor compliance with the above stated stipulations is made possible through the
mandated provision of share ownership records by listed issuers. All information
related to total foreign ownership (maximum limit and actual) can be obtained from
Tadawul’ s website. 5
Foreign Participation in IPOs
In line with Vision 2030 and market liberalization goals, the CMA has released
instructions for IPO Book-Building Process and Allocation as an initial step to allow
foreign investors to participate in initial public offerings in Saudi Arabia. Participation
is due to take effect from January 2017.
QFIs IPOs participation is subject to the company’s prospectus.
As changes unfold, more information on the status of foreign participation in IPOs in
Saudi Arabia may be found on the CMAs’ website. 6
4
There may be additional limitations set forth in the articles of association or by-laws of listed companies or instructions issued
by supervisory or regulatory authorities to which these companies are subject.
5
Accessed on Tadawul’s website.
6
http://cma.org.sa/En/Documents/English.pdf
Page 15 of 56
QFI: Saudi Arabia’s Scheme for Foreign Institutional Investors (cont’d)
Zakat
The tax rates which are applicable to QFI Investors are set out below.
Tax Rates applicable for QFI Investors
Investor return
Capital gains
Dividends
7
Non-resident tax rate
0%
7
8
5.0% withholding tax
9
Taxes are administered by the General Authority of Zakat and Tax
All shares acquired through QFI schemes are exempt from capital gains tax as they were acquired after 2004.
9
Companies listed on Tadawul are responsible for deducting withholding tax from dividends payable to QFI investors.
8
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Enhancements to The Saudi Market
In May 2016, the CMA announced a series of substantial improvements to the QFI
scheme and market infrastructure.
The changes to the QFI scheme were implemented effective 4 September, 2016.
The details provided in this Information Memorandum include these amended rules.
Other changes announced by CMA which are expected to be implemented during 1st
half of 2017 include:
Foreign Participation in IPOs: QFIs will be able to participate in IPOs.
Changes in trade settlement: The trade settlement cycle for listed companies will
be changed from T+0 to T+2.
Introducing Delivery versus Payment Model (DvP): to comply with the principle of
DvP, delivery of securities occurs only if the corresponding payment occurs.
Dropping Cash Prefunding Requirement: for specific investors, the cash
prefunding requirements is dropped and to be to be defined by the corresponding
Member.
Introduction of new services: Securities borrowing and lending and covered shortselling to be offered.
Enhancing Independent Custody Model: The enhancement to the custody model
will enable custodians to reject the settlement of unconfirmed trades executed by the
executing brokers.
Independent Custody Model Enhancement:

Custodians as members of Securities Depository Centre (SDC) who are
responsible to settle cash and securities obligations of their clients for trades
executed by executing brokers appointed by custodians’ clients are now able to
open several access accounts for a client and restrict trading from these
accounts to a specific Execution Broker(s). Allocation of the same account to the
multiple Execution Brokers is permissible.

Independent custody Members will also have the ability to reject the settlement of
unconfirmed trades executed by the executing brokers, therefore, custodians
have the option to keep or drop the dual accounts structure (custody account and
access account).
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Enhancements to The Saudi Market (cont’d)
T+2 Settlement Cycle
According to the new model, settlement of cash and securities is conducted two days
after the trading. However, purchasing and selling powers are granted immediately.
For instance, purchased securities could be sold immediately, before settlement. The
time window between trading and settlement could be used by the custodian to
confirm trades (executed by an executing broker) with clients and submit rejections
to SDC (accordingly.
Delivery Versus Payment (DvP)
Settlement is conducted according to the BIS Model 2, where securities are settled
on a gross basis but funds are transferred on a net basis. DvP Principle ensures that
security delivery occurs only if the corresponding payment occurs and therefore
eliminates principle risk.
Fails Management
Since there is a pre-order validation of sell trades, the only source for potential
securities shortage and therefore failed securities settlement is a sell trade rejection
by independent custodian.
In order to settle failed trades several fails management techniques will be used by
SDC or by executing brokers, such as: Executing broker can cover securities
shortage by transferring securities from principle account, borrowing securities via
SBL functional, or buying securities on open market. Executing broker can also
perform optional Buy-in (available from T+1 till T+4), and finally mandatory Buy-in
(conducted at T+5) by SDC.
Page 18 of 56
Changes Impacting Tadawul and QFI (cont’d)
Custody Controls
In order to mitigate assets safety risk, Tadawul is introducing ability for custodians to
reject trades (available only under Independent Custody Model). Trades could be
rejected from the moment of execution until cut off time at T+2. All rejections are
irrevocable; they cannot be cancelled or reversed. As soon as trade is rejected, it is
transferred from client account under custodian to the special broker rejection
account and becomes an obligation for the Executing Broker.
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QFI Application Guideline
Participation in the QFI Scheme
In order to participate in the QFI Scheme, applicants must first be assessed by an
Assessing Authorized Person (AAP).

AAP: An authorised person who has agreed with an applicant to assess its
application for registration as a QFI, or an authorised person who has
executed a QFI assessment agreement with a QFI. Moreover, the AAP
must be duly authorised to conduct custody or dealing activities. A full list
of AAPs is available on the CMA website.
Application process
1. Submit application to AAP: A QFI application is submitted to an assessing
authorised person (AAP).
2. AAP determination on QFI application: The AAP determines whether the
applicant complies with the applicable requirements and registration
conditions.
3. Assessment Process:
•
The QFI must notify the AAP of its intention to invest in listed securities
and provide the AAP with all information required to make its assessment.
•
The AAP will not approve the assessment unless the applicant agrees to
enter a standard QFI agreement.
4. Execute QFI Assessment Agreement: upon the AAP’s approval of the
application, the AAP and applicant will execute the QFI Assessment
Agreement.
5. CMA Review and Registration Process: The CMA is required to review the
application. If the CMA approves the application, the CMA will register the
applicant as a QFI, following which, the AAP must accept the QFI as a client
in accordance with the Authorised Person Regulations and execute the QFI
agreement with the QFI.
6. Open SDC account: The QFIs are required to have an account with the
SDC before trading can commence. through a local custodian.
Page 21 of 56
QFI Application Guideline (cont’d)
QFI Registration Process
QFI
CMA
AP
CMA does not
accept AP
acceptance
reasons (Article
11)
QFI
QFI
SDC
Investor
Deemed
unqualified
Assessment
(Article 9)
CMA accepts AP
acceptance
reasons (Article
11)
Registered
1. Submit Application
Specified by CMA.
2. Satisfy Required
Documents and
Information
(Article 7) (Annex 2.1)
/ Investor
Deemed
Qualified
Open an
Account
for each
QFI
(Article 14)
1- The registration
request along with
required documents
2- Written Declaration
(Article 9)
CMA
Review
Decision
YES
NO
Notify rejection reasons
Notify QFI about Registration (Article 12)
Page 22 of 56
Receive
CMA
Notification
Notify AP (Article 11)
After
approval,
CMA notifies
DC to allow
QFI Account
opening
QFI Application Guideline (cont’d)
1- Information and documents required to be registered with the
CMA as QFI:
The applicant must submit a "QFI Application Form" to an Assessing Authorised
Person (AAP), that is completed with the following information:
a. Details of the applicant's legal form and jurisdiction of establishment, supported by
copies of relevant constitutional documents;
b. A description of the applicant's business activities (if applicable), which may be
extracted from the applicant's annual report or equivalent corporate documents, but
should include confirmation of the period for which the applicant has been engaged
in securities activities and investment therein;
c. In relation to the financial institution referred to in sub paragraph e (1) of
paragraph (a) of Article 6 of the Rules for Qualified Foreign Financial Institutions
Investment in Listed Securities (the Rules), the fund's investment policy;
d. In relation to the financial institution referred to in sub paragraphs a (1), b (1), c (1)
of paragraph (a) of Article 6 of the Rules, evidence of the applicant's regulatory
status;
e. A list of all direct controllers of the applicant, and provide details of the identity and
ownership of each controller (if applicable);
f. A copy of the most recent annual report and consolidated accounts of the applicant
or its group (if applicable);
g. Details of other account names or affiliations under which the applicant invest in
the Kingdom, if any;
h. Details of all authorised persons of which the applicant is a client;
i. Details of any of the following material legal or regulatory sanctions imposed on the
applicant during the 5 years prior to the submission of the application: 1. the
suspension or revocation by a regulatory authority of any license or permission in
any jurisdiction or the imposition by a regulatory authority of any material restriction
or condition upon any such license or permission; and 2. any criminal, civil or
regulatory sanction or penalty imposed as a result of insider trading, market
manipulation or other market abuse or misconduct. together with a declaration from
the applicant that no other such sanctions have been imposed on the applicant
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during this period. If no legal or regulatory sanctions falling within the categories
specified in this paragraph have
QFI Application Guideline (cont’d)
been imposed on the applicant during the past 5 years, a declaration by the
applicant to this effect.
j. Details of any pending or on-going criminal or regulatory investigations or civil
proceedings;
k. Details of any settlement regarding criminal or regulatory investigations or civil
proceedings during the 5 years prior to the submission of the application; l. Financial
statements prepared and accredited by the applicant's or its group auditors in
accordance with accounting standards prescribed by the relevant authorities in the
applicant's jurisdiction of establishment, and showing the applicant's or its group
current financial position, including its capital, financial resources, revenues and
expenses at the date of the financial statements;
m. Such other documents or other evidence as may be sufficient to satisfy each of
the registration conditions under the Rules;
n. A QFI assessment agreement must include the following minimum requirements:
1. A representation by the applicant that it meets the registration conditions stated in
the Rules;
2. An undertaking by the applicant to provide the assessing authorised person with
all information and documents required under the Rules;
3. An undertaking by the applicant to notify the assessing authorised person within a
reasonable period of time not exceeding 5 days of any event or circumstance
requiring such notification under the Rules;
4. A confirmation by the applicant of its consent that the assessing authorized person
may disclose to the Authority or the Exchange information or documents which the
assessing authorised person receives under the Rules or the Capital Market Law
and its Implementing Regulations, and that such information may also be disclosed
to other government agencies of the Kingdom in accordance with the relevant laws;
and
5. An undertaking by the applicant to abide by the Capital Market Law and its
Implementing Regulations and the rules of the Exchange and other relevant laws. 6.
Page 24 of 56
Confirmation by the applicant of its consent to disclose any information or documents
required by the Authority or other government agencies of the Kingdom in
accordance with the relevant laws.
QFI Application Guideline (cont’d)
2- Information and documents required from the QFI to open an
account in the Securities Depositary Centre and an investment
account:
The QFI should submit the following information and documents to the AAP:
a. Investor Form specified by the Securities Depository Centre.
b. Identification documents.
c. A copy of the registration letter issued by the CMA pursuant to the Rules.
d. Disclosure of the QFI’s investments in listed companies
For more information, kindly refer to Saudi Stock Exchange (Tadawul)’s website
through the following link: http://www.tadawul.com.sa
3- Information and documents required from the QFI to open a
client account in a local bank:
The QFI should submit the following information and documents to the AAP (or any
other AP):
a. A signed agreement between the QFI and the AAP, specifying that the purpose of
opening the account is to invest in the Saudi listed securities.
b. When applicable, a copy of the license or the commercial registration certificate
for the foreign investor obtained from the relevant authority in the county of
establishment.
c. When applicable, a copy of the professional license for the foreign investor to
conduct business in the country of establishment, obtained from a regulatory body
equivalent to the CMA or the Saudi Arabian Monetary Agency.
d. When applicable, a copy of the by-law and its appendices, or a copy of the article
of association and its appendices.
Page 25 of 56
e. The end beneficiaries in addition to their identities (as a minimum, naturel persons
owning 5% as per the article of association and its appendices, or as per the
available information)
QFI Application Guideline (cont’d)
f. The ownership structure and control.
g. Information on the foreign investor (income source, activities, addresses, etc.)
h. Where applicable, a list of all foreign investor's owners whose names are included
in the article of association, with a copy of their identities. An exception of this
requirement is when the foreign investor is a joint-stock company listed in any
exchange.
i. When applicable, a delegation from the board of director’s specifying names of
authorized signatory in regard to the account.
j. Complying with know your customer (KYC) form and the requirements of the AntiMoney Laundering and Counter-Terrorist Financing Rules. (the form is prepared by
Saudi Arabian Monetary Agency).
k. Declaration from the foreign investor and/or the relevant AAP to disclose any
information to government agencies in the Kingdom immediately when required, in
accordance with the relevant rules and regulations.
l. A copy of the registration letter issued by the CMA pursuant to the Rules. For
more information, kindly refer to Saudi Arabian Monetary Agency’s website through
the following link:
http://www.sama.gov.sa
Page 26 of 56
Frequently Asked Questions on the Rules for
Qualified Foreign Financial Institutions 10
A. Introductory Questions
1. What is the definition of a Qualified Foreign investor (QFI)?
A QFI is a foreign investor registered with the Capital Market Authority (CMA), in
accordance with the Rules, to invest in securities listed in the Saudi Stock Exchange.
2. What are the securities that the Rules permit QFIs to invest in?
The Rules are governing the investment of foreign financial institutions in listed
securities in the domestic market, including equity, debt instruments, and ETFs.
3. Can a QFI invest in a fund not managed by him and invest directly in the
Saudi Exchange?
Yes, the QFI can invest directly in listed securities in the local market as well as
invest in the following investment funds, according to the regulations set by the
Authority:

Investment Fund registered with the Authority as a Qualified Foreign Investor
according to the Rules.

Investment fund that invests in the Saudi Stock Exchange through the swap
agreement.

Approved local investment funds by the Authority.
4. How can non-resident foreign investors that do not qualify as QFIs be able
to gain exposure to the Saudi listed shares?
Non-resident foreign investors that do not qualify as QFIs may enter the Saudi
capital market through the Swap Agreements Framework or investment funds, in
accordance with the procedures issued by the CMA in this regard.
10
Refer to the latest version of FAQs at cma.org.sa.
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5. How is investing through the QFI Framework different from investing
through the Swap Agreements Framework?
The QFI Framework allows for legal ownership of Saudi listed shares under the
name of the QFI, and participants in the Framework are able to exercise all rights as
shareholders that are related to that shares including voting rights, appointing a
representative to the board of directors of listed companies in accordance with the
Companies Law, as well as trading rights during rights issues in accordance with
CMA regulations. In contrast, the Swap Agreements Framework does not allow for
legal ownership of the underlying shares. The investor only receives economic
benefits from the shares under the Swap Agreements Framework.
6. Are QFIs subject to the Saudi Income Tax Law?
As per the Saudi Income Tax Law, QFIs are subject to a 5% withholding tax from the
total dividends distributed by the listed company. The Saudi Income Tax Law and its
Implementing
Regulations
may
be
viewed
through
the
following
link:
https://dzit.gov.sa
7. Who is responsible for deducting the withholding tax on dividends
distributed to QFIs?
Listed companies are responsible for deducting the withholding tax from
dividends that they distribute to QFIs.
8. Can QFIs participate in Initial Public Offerings (IPOs)?
Yes, in accordance with the relevant IPO prospectus.
9. Can QFIs vote in general assembly meetings?
Yes, in accordance with the Companies Law.
10. Are QFIs able to vote by proxy in relation to the shares they own?
Yes, in accordance with the Companies Law.
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11. Are QFIs able to vote electronically in respect of the securities owned by
them?
Yes, in accordance with Tadawulaty system.
12. Can QFIs nominate representatives for the board of directors of listed
companies?
Yes, in accordance with the Companies Law.
13. Can GCC citizens and foreign residents invest in listed securities through
the QFI Framework?
No, GCC citizens and foreign residents are prohibited to invest in listed securities
through the QFI Framework. Both GCC citizens and foreign residents, by virtue of
the rights already offered to them, can invest directly in Saudi listed securities in
accordance with regulations set by the Authority.
14. How do the Rules define GCC citizens?
The Rules define GCC citizens as citizen meeting either of the following conditions:

A natural person holding the citizenship of one of the Cooperation Council for
the Arab States of the Gulf countries.

A legal person that (i) capital of which is majority owned by citizens or
governments of the Cooperation Council for the Arab States of the Gulf, and
(ii) holding the citizenship of one of the Cooperation Council for the Arab
States of the Gulf countries.
15. Can a legal person, whose capital of which is majority owned by citizens or
governments of the Cooperation Council for the Arab States of the Gulf
(GCC) and holding the citizenship of foreign nationality, submit an
application for registration as a QFI?
Yes, the legal person that capital of which is majority owned by citizens or
governments of the Cooperation Council for the Arab States of the Gulf (GCC) and
holding the citizenship of non-GCC nationality can submit the application for
registration as QFI if it satisfies the conditions prescribed by the Rules, because in
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this case, the definition of GCC citizens as referred to in paragraph (c) of Article 2 of
the Rules, does not apply to the applicant. As described in the answer of question
(14) of this document; the applicant must be a person that capital of which
5 is majority owned by citizens or governments of the GCC and holding the
citizenship of one of the GCC countries.
16.Will the approved QFI Clients be converted to QFIs based on the updated
Rules?
Yes, all the approved QFI clients will be converted to QFIs according to their types,
in which the client submits a declaration letter to the Assessing Authorised Person
(AAP) to abide by the Rules according to the form prepared by the CMA, which must
be provided to the CMA prior to 01/11/2016.
17. What is the process to submit a waiver from any of the provisions of the
Rules in whole or in part?
In accordance with Article 3 of the Rules, an applicant, a QFI, or an AP can apply for
a waiver from any of the Rules provisions in whole or in part by sending a request for
a waiver along with justifications to CMA's Chairman. The CMA will study the request
to reach a decision to whether accept or reject it. The decision will be sent to the
applicant of the waiver with explanation of rejection or the process to be followed if
the request is approved.
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B. Registration Conditions for QFIs
18. What are the QFI registration conditions set out in the Rules?
a. The applicant must be a financial institution that has a legal personality which falls
within one of the following types: 1. Banks 2. Brokerage and securities firms 3.
Insurance companies 4. Government and government related entities 5. Investment
funds 6. Any other financial institution considered eligible by the Authority.
b. With the exception of government and government related entities and Investment
funds, the applicant or any of its group must have been engaged in securities
activities and investment therein for a minimum of five years.
c. With the exception of government and government related entities, the applicant
must have assets under management of SAR 3,750,000,000 three billion seven
hundred and fifty million Saudi Riyals (or an equivalent amount) or more. And the
Authority may reduce these assets.
d. The financial institutions in sub-paragraphs (1), (2), (3) of paragraph (a) must be
licensed or otherwise subject to regulatory oversight by a regulatory authority in a
jurisdiction that applies regulatory and monitoring standards equivalent to those of
the CMA or acceptable to it.
e. The financial institutions in sub-paragraphs (4), (5) of paragraph (a) must be
incorporated in a jurisdiction that applies regulatory and monitoring standards
equivalent to those of the Authority or acceptable to it.
19. What are the jurisdictions that apply regulatory standards acceptable to
the CMA?
The CMA provided Authorised Persons (APs) who have a dealing or custody
licenses with the list of jurisdictions that apply regulatory and monitoring standards
equivalent to those of the CMA or acceptable to it, and will provide any subsequent
updates to that list. All jurisdictions on the list must satisfy all international financial
standards and the requirements of the Anti- Money Laundering and CounterTerrorist Financing Rules.
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20. What do assets under management include?
Assets under management include:

Assets owned by the applicant or its group for the purpose of investment. And in
relation to investment funds, including assets owned by the foreign portfolio
manager or its group for the investment purposes; and

Assets managed by the applicant or its group for the account of another person
or persons. And in relation to investment funds, including assets owned by the
foreign portfolio manager or its group for the account of another person or
persons. The term "group" is defined in the in the Glossary of Defined Terms
Used in the Regulations and Rules of the CMA as: "in relation to a person, means
that person and each affiliate of it". It defines the term “affiliate” as: “a person who
controls another person or is controlled by that other person, or who is under
common control with that person by a third person. In any of the preceding,
control could be direct or indirect”. The Glossary of Defined Terms Used in the
Regulations and Rules of the CMA also defines the term “control” as: “the ability
to influence the actions or decisions of another person through, whether directly
or indirectly, alone or with a relative or affiliate (a) holding 30% or more of the
voting rights in a company, or (b) having the right to appoint 30% or more of the
members of the governing body; “controller” shall be construed accordingly”.
21. How assets managed by investment fund will be calculated in the event of
appointing more than one foreign portfolio manager?
The investment fund or its group with one of the appointed portfolio managers or
their group must have the assets under management of SAR (3,750,000,000) or
more, and this condition is continuously met.
22. Does the applicant need to satisfy the investment experience
requirement if the applicant was an investment fund?
Investment experience requirement does not apply if the applicant is an investment
fund, but it must be met by the foreign portfolio manager, according to the definition
of foreign portfolio manager prescribed in the Rules.
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23. What are the government related entities?
The government related entities mean central banks and investment funds- including
sovereign funds and funds that take the form of pension funds and endowments- that
are fully owned directly or indirectly by a government entity.
24. Are there any conditions that must be met by the foreign portfolio
manager?
Yes, the foreign portfolio manager must has a legal personality which manages the
assets of clients and must be licensed or otherwise subject to regulatory oversight by
a regulatory authority and incorporated in a jurisdiction that applies regulatory and
monitoring standards equivalent to those of the Authority or acceptable to it. Also,
the foreign portfolio manager or any person of its group must have been engaged in
securities activities and investment therein for a minimum of 5 years and in which
engages or intend to engage with the QFI or the applicant for the purpose of
investing on its behalf in listed securities.
25. Is the applicant required to submit the foreign portfolio manager’s financial
statements if the applicant’s assets under management is SAR 3,750,000,000 three billion seven hundred and fifty million Saudi Riyals- (or an equivalent
amount)?
If the applicant`s assets under management meets the threshold as specified in
subparagraph (1) of paragraph (b) of Article (6) of the Rules and submits what
proves it and intend to engage with foreign portfolio manager, the applicant is not
required to submit the financial statements of the foreign portfolio manager as per
paragraph (2) of Annex (2.1) taking into account providing what proves the size
threshold specified in the application for registration form submitted to the CMA.
26. Should the foreign portfolio manager be registered as QFI?
The foreign portfolio manager should not be registered with the Authority, and it is
sufficient to provide a list of all the foreign portfolio managers to the AAP in which the
QFI intends to deal with them and to be accompanied by the information and
documents in accordance with sub-paragraph (b) of paragraph (2) of Annex (2.1) of
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the Rules. Taking into account the additional information and documents that must
be submitted by the applicant who intends to deal with the foreign portfolio managers
to invest in the Saudi market if they are not registered as QFI, according to the
Annex (2.1) of the Rules.
27. Can QFI deal with a GCC portfolio manager?
Yes, the QFI can deal with a GCC portfolio manager for the management of its
investments in the Saudi Stock Exchange.
28. Can a portfolio manager be an AP licensed by the Authority?
Yes, it is permissible for QFI to deal with portfolio manager who is
licensed by the CMA.
29. Can a QFI deal with more than one portfolio manager?
Yes, the QFI can deal with more than one portfolio manager at the same time, either
if it was an AP authorised from the CMA or a foreign portfolio manager which
includes a GCC portfolio manager, though, the QFI must notify the AAP when
dealing with a new portfolio manager in accordance with Annex (3.1) of the Rules.
30. Is it possible for QFI to deal with another QFI to manage his investments in
listed securities?
Yes, the QFI can deal with another QFI to manage his investments in listed
securities and that does not prejudice the responsibility to abide by the law and its
implementing regulations and market rules and its regulations, and other rules that
are related.
31. Do assets under management include the assets of the funds managed by
the applicant even if such funds did not satisfy the conditions required to
register as QFI?
Yes, assets under management include assets of the funds managed by the
applicant even if such funds did not satisfy the conditions required to register as QFI.
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C. Registration Process
32. Who is an AAP?
An AAP is a person authorised “AP” by the CMA to conduct custody or dealing
activities, who has agreed with an applicant to assess its application for registration
as a QFI. For the List of APs, please refer to the CMA website through the following
link:
http://www.cma.org.sa/En/Pages/AuthorisedPersons.aspx.
33. What is the role of the AAP?
The AAP will assess the QFI’s registration request to ensure that the application
complies with the requirements prescribed by the Rules, and then provide the CMA
with a written notification of its determination with regard to the QFI registration
request to the CMA.
34. How should the AAP notify the CMA with its determination with regard to
the QFI registration request?
The AAP should send an electronic copy of the notification mentioned above to the
CMA, which should be submitted through the CMA Portal using the following link:
https://ecma.cma.org.sa/en
35. How long does it take to be registered as a QFI?
The overall application process may take up to 5 days from the CMA’s
receipt of all required information and documents, unless the CMA, as it
deems appropriate, imposes an additional period to review the AAP's
determination to accept the application.
The term "day" is defined in the Glossary of Defined Terms Used in the
Regulations and Rules of the CMA as: "a business day in the Kingdom in
accordance with the official working days of the Authority". Business days
in the CMA are from Sunday to Thursday.
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36. When does the CMA’s five-day period specified to review the AAP
determination to register a QFI begin?
The five day review period begins on the day that the AAP receives the CMA’s
notification that it has received all the information and documents required by Article
9 of the Rules.
37. Is the AAP required to inform the QFI that it has been registered with the
CMA?
Yes, the AAP must give the QFI a written notification that it has been registered with
the CMA within a reasonable time not exceeding 5 days, and the AAP must also
notify the applicant, in writing, in the case that the application is rejected.
38. When will the applicant becomes a QFI?
An applicant becomes a QFI from the date of the Authority’s notification to approve
the determination of the AAP to accept the applicant.
39. In the case that a request for registering a QFI is rejected, can an applicant
re-apply?
Yes, the applicant can re-apply and there is no specific time period which must lapse
before the applicant can resubmit the application.
40. Does the CMA impose fees for QFI registration?
The CMA is currently considering the fees that might be applied to register QFIs, and
to maintain the registration. Moreover, the CMA intends to set, announce and
impose the fees at the beginning of 2017.
41. In what language should the information and documents required by the Rules be
submitted?
Arabic is the official language in the Kingdom of Saudi Arabia, information
and documents attached to the application may be submitted in the
English language. In case of any discrepancy between the Arabic and
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English text, the Arabic text shall prevail, given that all information and
documents must be complete, clear, accurate, not misleading, and up to
date.
42. What is the required information to satisfy the “identity of any controllers”
requirement as specified in sub-paragraph (e) of paragraph (1) of Annex (2.1)
of the Rules?
To satisfy this requirement, only provide the name of the direct controller whether a
natural or legal person and the jurisdiction of establishment (where applicable).
43. Can a foreign investor who is not required- according to the regulations in
the jurisdiction in which it is established or licensed by or subject to its
regulation and control- to prepare audited financial statements of its own to
submit an application for registration as QFI?
It is allowed for the foreign investor to submit the application for registration as a QFI
by submitting the audited financial statements of the group. If the QFI or its group are
not required - according to the regulations which they are subject to - to prepare
audited financial statements, a waiver request may be submitted to the CMA in
accordance with Article 3 of the Rules – and as described in the answer of question
(17) of this document- from the requirement prescribed in sub-paragraph (l) of
paragraph (1) of Annex (2.1) of the Rules regarding the applicant's submission of its
financial statements that are prepared and accredited by the applicant's auditors.
44. Can a QFI delegate the foreign portfolio manager to process the application
for registration and sign the assessment agreement with the AAP?
Yes, the QFI may delegate the foreign portfolio to process the application for
registration and sign the assessment agreement with the AAP, providing a proof of
such delegation to the AAP when submitting the application.
45. Can an AAP rely on a third party to conduct Know Your Client "KYC"
process?
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Yes, the AAP can rely on a third party to conduct Know Your Client "KYC" process in
accordance with Article (14) of the Anti-Money Laundering and Counter-Terrorist
Financing Rules and Article (13) of those rules regarding Investment Funds.
46. Is the QFI required to obtain authorisation by the CMA in relation to
carrying on dealing as principal activity to invest in securities listed in the
Saudi Stock Exchange?
The QFI is not required to obtain authorisation by the CMA in relation to carrying on
dealing as principal activity to invest in securities listed in the Saudi Stock Exchange.
47. Is the foreign portfolio manager required to obtain authorisation by the
CMA in relation to carrying on managing activity when managing listed
securities belonging to a QFI in the Saudi Stock Exchange?
The foreign portfolio manager is not required to obtain authorisation by the CMA in
relation to carrying on managing activity when managing listed securities belonging
to a QFI in the Saudi Stock Exchange.
48. Is the foreign portfolio manager required to obtain authorisation by the
CMA in relation to carrying on custody activity when safeguarding listed
securities belonging to a QFI?
The foreign portfolio manager is not required to obtain authorisation by the CMA in
relation to carrying on custody activity when safeguarding listed securities belonging
to a QFI without prejudice to appoint local custodian authorised by the CMA.
49. Is the foreign portfolio manager required to obtain authorisation by the
CMA in relation to carrying on advising activity when providing advice to a
QFI?
The foreign portfolio manager is not required to obtain authorisation by the CMA in
relation to carrying on advising activity when providing advice to a QFI.
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D. Trading
50. When can a QFI start trading listed securities?
A QFI may commence trading in any listed securities upon satisfying the following:
Holding a client account.
Holding an account with the Depositary Centre.
Any conditions as may be imposed by the CMA. The term "client account" is
defined in the Glossary of Defined Terms Used in the Regulations and Rules of the
CMA as: "an account at a local bank which is in the name of an authorised person
and fulfils the conditions required by the Client Money Rules".
51. How can the applicant satisfy the registration requirements, the client
account opening requirements and the requirements for opening an account
with the Depository Centre?
The CMA worked in coordination with the relevant authorities to facilitate the
establishment of a unified platform [One-Stop -Shop] for the CMA approval
requirements and the account opening requirements and the requirements for
opening an account with the Depository Centre and bank account, to facilitate the
fulfilment of such requirements, and the applicant will only need to provide the
required information and documents in this regard to the AAP, provided that the
concerned AAP takes the necessary actions in accordance with the procedures
issued by the CMA in this regard. Additionally, the CMA published on its website a
document that includes all the information and documents required from foreign
investors to invest in listed securities.
52. What are the procedures to open a client account?
The concerned AP shall open a client account for the QFI pursuant to the applicable
procedures set forth by the CMA and the Saudi Arabian Monetary Agency, which
may be viewed through the following link:
http://cma.org.sa/Ar/Documents/InfoAndDocUpdated.pdf
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53. What are the procedures to open an account with the Depositary Center?
The concerned AP shall open an account with the Depositary Centre for the
pursuant to the applicable procedures set forth by the CMA and the Saudi Stock
Exchange, which may be viewed through the following link:
http://cma.org.sa/Ar/Documents/InfoAndDocUpdated.pdf
54. How can the QFI’s investment account be linked to a bank account in the
name of the QFI, and how could the authorized person ensure that the money
transferred to the investment account is received from an account that
belongs to the QFI?
The bank account is considered to be in the name of the QFI (belonging to the QFI)
as indicated in the electronic record kept by the authorised person, that is based on
the information provided by the QFI to the authorised person whether in the
beginning of their contractual relationship or during such relationship. Such
information may include the information obtained by the authorised person from an
international bank (commercial or investment banks, brokerage and securities
institutions including custodians) on behalf of the QFI, such as, a written statement to
the authorised person confirming that the money transferred to the QFI investment
account belongs to the same client. Taking into consideration the authorised
person's compliant with the client money rules in the Authorised Persons
Regulations, and its obligation to take all necessary steps to ensure that the obtained
information is true, according to Article (8) of the Anti-Money Laundering and
Counter-Terrorist Financing Rules.
55. Should each QFI open a separate account in the Depositary Centre?
Yes, every QFI shall open an independent account. After that, the QFI can open
several investment portfolios that are linked to the account.
56. Who is the competent authority responsible for the resolution of disputes
resulting from trading?
The Committee for the Resolution of Securities Disputes (CRSD) has the jurisdiction
over the disputes falling under the provisions of the Capital Market Law, its
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Implementing Regulations, and the regulations, rules and instructions issued by the
CMA and the Exchange, with respect to public and private actions, including any
trading disputes that may arise among all parties subject to the Rules. The CRSD’s
decision may be appealed before the Appeal Panel that is formed by a Council of
Ministers’ resolution. The Appeal Panel shall have the discretion to refuse to review
the decisions of the CRSD, to affirm such decisions, to undertake a de novo review
of the complaint or suit based on the record developed at the hearing before the
Committee and to issue such decision as it deems appropriate in relation to the
complaint or the suit. The decisions of the Appeal Panel shall be final. The decisions
issued by these committees are published in both Arabic and English on the
Committees for the Resolution of Securities Disputes' website, and those decisions
can be viewed through the following link:
http://www.crsd.org.sa/
57. Can a QFI send trading orders through an international broker that is not
registered as a QFI?
If the international broker’s role is limited to sending orders issued by the QFI to the
AP, then the international broker is not required to register as a QFI, provided that
the international broker must have the authority to send such orders.
58. Can a QFI establish a discretionary portfolio management (DPM)?
A QFI can establish a DPM with an AP in relation to its investments.
59. Are existing Swap Agreements' ultimate beneficiary allowed to apply to
become a QFIs?
Yes, provided that the ultimate beneficiary satisfies the conditions prescribed in the
Rules to be registered as a QFI. In Addition, all shares underlying Swap
Agreements, where the ultimate beneficiary of such shares is the QFI must be
transferred to the QFI account in accordance with the procedures issued by the
CMA, which are stated in the answer of question (60) of this document. The ultimate
beneficiary means; non-resident foreign investor that receives the economic benefits
of the shares listed on the Saudi Stock Exchange through swap transactions
executed under the Swap Agreements.
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60. How shares are transferred from a Swap Agreement account to a QFI
account?
The transfer operation is done according to the following: 1. QFI submits– through
the AAP- a detailed transfer request of all shares underlying the Swap Agreement,
where the ultimate beneficiary of such shares is the QFI, to his account with the
Depositary Centre, according to the form prepared by the Exchange for this purpose.
2. Submitting the transfer request, referred to in paragraph (1) above, must be done
as soon as a request is submitted to open an account with the Depositary Center. 3.
The Exchange takes the necessary procedures to execute the transfer operation and
close the Swap Agreement account in relation to the QFI. 4. The transfer operation
shall be executed after ensuring that there are no obligations (such as: a pledge or a
seizure of the shares) or outstanding buy and sell orders, regarding the shares
requested to be transferred.
61. What are the costs of transferring shares from a Swap Agreement account
to a QFI account?
The cost of transferring is 20 SAR for the shares of each listed company (not per
share).
62. Does transferring shares from a Swap Agreement account to QFI account
affect the market value of such shares?
Transferring shares from a Swap Agreement account to a QFI account does not
affect the market value
of the shares.
63. How long does it take to transfer shares from a Swap Agreement account
to a QFI account?
The shares shall be transferred within 2 business days from the date on which all the
requirements were completed.
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64. Can a QFI be the Foreign Counterparty under a Swap Agreements
Framework?
Yes, a QFI can be the Foreign Counterparty in Swap Agreements, but a QFI cannot
participate as ultimate beneficiary under the Swap Agreements Framework.
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E. Investment Limits
65. Does the ownership limit of 49% of any listed company include the
strategic foreign investors in such company?
Yes, all foreign investors (in all categories, whether residents or non-residents),
including strategic foreign investors, cannot own more than 49% of the issued
shares for each listed company, including interests under the Swap Agreements
Framework.
66. How can the information on ownership limits in listed companies
stipulated in the Rules be obtained?
The Saudi Stock Exchange shall publish on its website statistical information
reflecting ownership percentage as per the paragraphs (a/2) of Article 16 of the
Rules. In addition, according to the information received from listed companies, the
Saudi Stock Exchange shall also publish on its website the limits stated in
paragraphs (a/3) and (a/4) of Article of the Rules.
67. What are the responsibilities of APs and QFIs with regard to the ownership
limits in listed companies stipulated in the Rules?

APs must comply with the relevant rules set out in the Capital Market Law
and its Implementing Regulations, in particular the Authorised Persons
Regulations, Market Conduct Regulations and the Rules.

QFIs must comply with the ownership limits specified in sub-paragraphs
(a/1), (a/3), and (a/4) of Article 16 of the Rules for investments in their
account. It should be noted that the Saudi Stock Exchange will automatically
control the ownership limits specified in Article 16 of the Rules. An automatic
control of a limit means that the Saudi Stock Exchange’s systems will reject
orders that are not considered to be compliant with the ownership limits in
listed companies stipulated in the Rules.
68. Who is responsible of complying with the investment limits and disclosure
requirements when the QFI engages with foreign portfolio manager?
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The QFI is responsible of complying with investment limits and disclosure
requirements and abide by the Capital Market Law and its Implementing
Regulations and the rules of the Exchange and other relevant laws.
69. What are the ownership limits in listed companies stipulated in the Rules
that will be automatically controlled by the Saudi Stock Exchange?
The following ownership limits will be automatically controlled by the Saudi Stock
Exchange:

Each QFI may not own 10% or more of the shares of any issuer whose
shares are listed or convertible debt instrument of the issuer.

The maximum proportion of the share of any issuer whose shares are listed
or convertible debt instrument of the issuer that may be owned by all foreign
investors (in all categories, whether residents or non-residents) in aggregate
is 49%.
70. What are the consequences for non-compliance of foreign investor with
the ownership limits in listed companies stipulated in the Rules?
In the case of non-compliance with the ownership limits, the foreign investor is
considered in breach of the Rules, and the CMA can take the action it sees fit in
accordance with Article (23) of the QFI Rules which includes the action stipulated in
sub-paragraph (7/a) that enables the CMA to exercise any of its other powers under
the Capital Market Law specifically the power stipulated under paragraph (a) of
Article (59) that states: "If it appears to the Authority that any person has engaged,
is engaging, or is about to engage in acts or practices constituting a violation of any
provisions of this Law, or the regulations or rules issued by the Authority, or the
regulations of the Exchange, the Authority shall have the right to bring a legal action
before the Committee to seek an order for the appropriate sanction. The sanctions
include the following: (3) obliging the person concerned to take the necessary steps
to avert the violation, or to take such necessary corrective steps to address the
results of the violation".
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F. On-going Obligations
71. Is the QFI required to provide the CMA with notifications?
Where a notifiable event, as set out in Annex 3.1 of the Rules, has occurred and the
QFI reasonably believes that disclosure of the event to the AAP in accordance with
paragraph (a) of Article 18 of the Rules would materially prejudice the operations and
businesses of the QFI or a third party, the QFI may make a notification to the CMA in
substitution for notifying the AAP.
72. What is the required period of time for the QFI to notify the AAP if any of
the notifiable events occurs?
A QFI must within a reasonable period of time not exceeding 5 days notify the AAP
engaged by it if any of the notifiable events occurs.
73. Are the QFI required to provide the CMA with notifications regarding their
ownership in listed companies?
Yes, the QFI is required to notify the issuer and the CMA as per the events stipulated
in Listing Rules as follows: a. becoming the owner of, or interested in, 5% or more of
any class of voting shares or convertible debt instrument of the issuer b. the
ownership or interest of the person increasing or decreasing by 1% or more of the
shares, or convertible debt instruments of the issuer. Except where the increase or
decrease was a result of capitalisation issue, capital increase for acquiring a
company or purchasing an asset, issuer's capital reduction, or the issuance of rights
issues where the person or any of the persons deemed to be interested in did not
trade or exercise their right to subscribe.
74. What is meant by a person who is interested in shares or convertible debt
instruments?
A person will be deemed interested in any shares or convertible debt instruments
owned or controlled by any of the following persons: a. A relative of that person; b. A
company controlled by that person; c. Any other persons with which that person has
agreed to act in concert to acquire interest in or exercise voting rights in the shares
or in the convertible debt instruments of the issuer. The term "person" is defined in
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the in the Glossary of Defined Terms Used in the Regulations and Rules of the CMA
as: "any natural or legal person recognised as such under the laws of the Kingdom”.
75. Is there a special notification form with regards to the ownership in listed
companies?
Yes, the notification shall be in accordance with a form prepared by the CMA, which
may be viewed through the following link:
http://cma.org.sa/Ar/FormsSite/Pages/Disclosure.aspx
76. Can a QFI engage with more than one AAP at the same time?
No, a QFI may not engage with more than one AAP at the same time.
77. Can a QFI become a client of another AP for the purpose of investing in
listed securities?
Yes, a QFI can be a client of any other AP when investing in listed securities.
78. Can a QFI change its AAP?
Yes, the QFI can change its AAP.
79. How can a QFI change its AAP?
A QFI can engage with a replacement AAP within 10 days after the lapse or
termination of the QFI assessment agreement with the replaced AAP. The
replacement AAP shall without delay notify the CMA in writing of its appointment. If a
QFI fails to engage with a replacement AAP
within the 10 day period, the QFI must notify the CMA of this fact without delay,
whereupon the CMA may either grant an extension or revoke the QFI's registration.
80. Can the QFI trade listed securities during the 10 day period after the lapse
or termination of the QFI assessment agreement?
Yes, the QFI can trade listed securities during this period, provided that it adheres to
its responsibilities to comply with the Rules.
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81. When should an AAP notify the CMA when the QFI no longer meets the
registration conditions?
If an AAP finds at any time that a QFI by which it is engaged with no longer meets
the applicable registration conditions stated in the Rules or has breached any of its
obligations under the Rules, the AAP must report such findings to the CMA in writing
without delay.
82. Is the QFI required to notify the AAP in the event in which the QFI no longer
engages with the foreign portfolio manager?
Yes, the QFI must notify the AAP in the event in which the QFI no longer engages
with the foreign portfolio manager. Also, the AAP must notify the CMA in writing
without delay.
83. Can the QFI apply for cancellation of QFI registration?
The QFI may submit a cancellation request to an AAP, so long as, the request is
accompanied with a confirmation from the QFI that it does not own any listed
securities including any rights related to it. The AAP must then submit a request to
the CMA to that effect on the QFI’s behalf.
84. Will the contractual relationship between the AAP and the QFI be affected if
the CMA’s decision is to decline the request to cancel the registration of the
QFI?
Declining the request for cancellation of the registration of the QFI should not affect
the AAP’s decision of whether or not to maintain or terminate the contractual
relationship with the related QFI.
85. Does a QFI need to be aware of other laws or regulations?
QFIs must be aware of the relevant provisions of the Capital Market Law and its
Implementing Regulations, the rules and the regulations of the Saudi Stock
Exchange and any other relevant laws. This includes the Listing Rules, the Market
Conduct Regulations, the Authorised Persons Regulations, the Merger and
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Acquisition Regulations, the Anti-Money Laundering and Counter Terrorist Financing
Rules.
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G. Others
86. What is the settlement cycle for shares listed in the Saudi Stock
Exchange?
The settlement cycle for trading listed shares in the Saudi Stock Exchange follows
(T+0) regime; however the CMA has approved the Saudi Stock Exchange’s
(Tadawul)
request
to
change the settlement cycle to become (T+2), to be effective prior to the end of the
first half of 2017, which will also ensure delivery versus payment (DvP). The
prefunding condition shall be subject to the contractual arrangement with the
concerned securities broker and not a regulatory requirement.
87. What are the trading hours of the Saudi Stock Exchange?
Trading is open for one session from10:00 am – 3:00 pm, Sunday through Thursday.
The Saudi Stock Exchange is closed during all official holidays.
88. Will the Depository Centre allow APs who are licensed to conduct custody
activities, but who do not have a dealing license, to be connected with the
Depository and Settlement System, in order to enable them to offer
independent custody services for investors in Saudi listed securities?
Yes, the Depository allows APs with custody licenses to be connected with the
Depository and Settlement System, so that they can offer custody and all related
services to the investors. Therefore, investors in Saudi listed securities are able to
appoint an independent custodian different than the broker who executes their
trades.
89. Can QFIs receive financing from local banks to fund their investments?
Yes, pursuant to the applicable procedures set forth by the CMA and the Saudi
Arabian Monetary Agency, QFIs can receive financing from local banks to fund their
investments.
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90. What protection is available to minority shareholders in relation to Merger
and Acquisition transactions?
The provisions of the Companies Law and Merger and Acquisition Regulations
included a number of protection means for minority shareholders, such as: First: The
Companies Law Article 94:

An extraordinary general assembly meeting shall not be valid only if attended
by shareholders representing at representing at least one half of the
company's capital, unless the company's bylaws provide for a higher
proportion provided that such proportions shall not exceed the two-thirds.

If this quorum has not been obtained at the first meeting in accordance with
above paragraph, a notice shall be sent for a second meeting in the manner
prescribed in Article (91) of the Companies Law. However, the second
meeting may be held after an hour from the end of the period fixed for holding
the first meeting. The notice sent for the first meeting must include an
indication to the possibility of holding a second meeting. In all cases, such
meeting shall be valid if attended by a number of shareholders representing at
least one quarter of the company's capital.

If this quorum has not been obtained at the second meeting, a notice shall be
sent for a third meeting in the manner prescribed in Article (91) of the
Companies Law, and such third meeting shall be valid regardless of the
number of shares represented thereat, after the approval of the competent
authority.

Resolutions of an extraordinary general assembly shall be adopted by a twothirds majority vote of the shares represented thereat. But if a resolution
pertains to an increase or decrease in capital, or to extension of the term of
the company, or to termination of the company prior to expiry of the term
specified in its bylaws or to merger of the company into another company or
firm, it shall be valid only if adopted by a three-fourths majority vote of the
shares represented at the meeting.

The Board of Directors must publish, in accordance with the provisions of
Article (65) of the Companies Law, the resolutions adopted by an
extraordinary general assembly meeting if such resolutions included an
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amendment of the company's bylaws. Second: Merger and Acquisition
Regulations.

Paragraph (b) of Article 3: All shareholders of the same class of an offeree
company must be treated equally by an offeror.

Paragraph (c) of Article 3: During the course of an offer, or when an offer is in
contemplation, neither an offeror, nor the offeree company, nor any of their
respective advisers may furnish information to some shareholders which is
not made available to all shareholders. This principle does not apply to the
furnishing of information in confidence by the offeree company to a bona fide
potential offeror or vice versa.

Paragraph (m) of Article 3: A director shall not vote at a meeting of directors
or of a committee of directors or a general assembly meeting on any
resolution concerning an offer made under these Regulations or any other
relevant matter where the director or any relative of his has a conflict of
interest. In this context, such a conflict of interest would arise if he had,
directly or indirectly, an interest (including his shareholding in the offeree
company, if the director is a director of the offeror company, or his
shareholding in the offeror company, if the director is a director of the offeree
company) or duty (including where the director of the offeror company holds a
position of a director or a manager of the offeree company, and where the
director of the offeree company holds a position as a director or a manager of
the offeror company) which is material and which conflicts or may conflict with
the interests of the company.

Paragraph (a) of Article 12: Where a person or a group of persons acting in
concert increase ownership of shares in a given company through a restricted
purchase of shares or a restricted offer for shares so that such person or
those with whom such person is acting in concert become the owner of 50%
or more of a given class of voting shares listed on the Exchange, the Board
shall have the right to exercise its power in accordance with Article 54 of the
Capital Market Law to order such person to offer to purchase the shares of
the same class it does not own on the terms set out in this Article 12 and in
accordance with the other relevant provisions of these Regulations.

Paragraph (a) of Article 13: 1) Any person acquires, whether by a transaction
or a series of transactions, shares which (taken together with shares held,
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acquired or where shareholding control is vested in persons acting in concert
with him) carry 30% or more of the voting rights of a company listed on the
Exchange or Any person who, together with persons acting in concert with
him, holds not more than 30% of the voting rights of a company listed on the
Exchange and such person, or any person acting in concert with him,
acquires additional shares which increase his percentage of the voting rights
to more than 30%,2) Such persons may extend an offer, in accordance with
the relevant provisions of these Regulations, to the holders of any class of
equity share capital, whether voting or non-voting, and also to the holders of
any class of voting non-equity share capital of the offeree company. An offer
for different classes of equity share capital must be comparable; the Authority
should be consulted in advance in such cases.

Paragraph (a) of Article 23: Information about companies involved in an offer
must be made equally available to all shareholders as nearly as possible at
the same time and in the same manner.

Sub-paragraph (2/b) of Article 24: Any break-up fee that is proposed must be
of a minimal size (no more than 1% of the offer value) and the offeree
company board and its financial adviser must confirm to the Authority in
writing that the fee to be in the best interests of shareholders. Any break-up
fee arrangement must be fully disclosed in the announcement made under
Article 6 (f) and in the offer document.
91.Would Tadawul join the international emerging market indices?
Large global asset managers benchmark their funds to investable market indices.
Emerging markets are a distinct and attractive investment and index category,
offering economic growth, enhanced liquidity, and diversification. A natural evolution
of the development of the QFI scheme in Saudi Arabia is the opportunity for Tadawul
to be included in the relevant global investable emerging market indices developed
by the 3 leading index providers.
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Relevant Emerging Market Indices for Saudi Arabia
Index Name
FTSE Secondary Emerging Index
MSCI Emerging Markets Index
S&P Dow Jones Emerging Markets Index
Experiences of countries already included in the EM or Global Market Indices,
indicate that the inclusion in global indices prompts substantial inflow to the capital
market and the gradual shift to institutional investment enhances stability and
efficiency of the market.
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Contact Us
Should you wish to acquire further information on any aspect of the QFI framework contact
Tadawul and/or CMA via the following contact details:
Tadawul
Working hours: Sunday to Thursday: 8 a.m. to 4 p.m. [GMT +3]
Address: 6897 King Fahd Road - Al Ulaya
Unit Number: 15
Riyadh 12211-3388
Kingdom of Saudi Arabia
Main Number:
+966 (0)11 218 9999
Customer Service:
(+966) 92000 1919
Fax:
+966 (0)11 218 9133
E-mail: [email protected] / [email protected] / [email protected]
Website: https://www.tadawul.com.sa/wps/portal/tadawul/home
CMA
Working Hours: Sunday to Thursday, 8.00 a.m. to 4 p.m. [GMT +3].
Address: CMA Head Office - King Fahad Road
P.O. Box 87171
Riyadh 11642
800-245-1111
Contact Centre: 00966 11 205-3000
E-mail: [email protected]
Website: http://www.cma.org.sa/En/Pages/home.aspx
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