Rules on opening of Saudi stock exchange to foreign investors due in April

Saudi Arabia’s market regulator will publish the final rules governing the opening of the kingdom’s stock exchange to direct foreign investors by the end of this month, a senior Saudi banker said.

His comments agree with a report in pan-Arab newspaper Asharq Al Awsat, which quoted unnamed informed sources in the kingdom as saying the regulations will be published this month and the market will officially open to overseas institutions 60 days later.

The opening of the Saudi market, the largest in the Arabian Gulf with a capitalisation of about $510 billion, is one of the most eagerly awaited economic reforms in the region in recent times.

With about the same value as all other Gulf Arab markets combined, and worth more than stock markets in either Russia, Malaysia or Turkey, the kingdom is also one of the last major global bourses to open itself for foreigners to directly invest in the exchange.

“They will soon publish the final regulations, most likely by the end of April,” the banker said, speaking on condition of anonymity as the information isn’t public.

He added there would probably be a timetable announced at the same point that would give details about how banks would register clients, and the official opening was likely to come by the end of Ramadan, which concludes about July 17.

When announcing plans to open the market to direct foreign investment, the Saudi authorities said it would happen by the end of the first half ofthis year, a fact reiterated by the new head of the Capital Market Authority (CMA) in February.

The responses from a consultation with investors that took place at the end of last year over the draft rules have been studied by the CMA for the past few months. Bankers in the kingdom expect some changes to that original document but nothing dramatic.

Among the major issues raised by the consultation is said to be whether swaps agreements, whereby foreign investors buy Saudi shares through a local proxy, will be included in the calculation of how much foreign investors can own in a single stock.

Under the draft rules published in August, there will be a 20 per cent cap on combined foreign ownership of a company.

The opening will be controlled, like the opening of China’s bourse to foreigners. A limited number of licences are expected to be granted initially by the authorities, but the opening is still attracting significant interest.

One issue which might have derailed the timeline for the market opening is the Saudi-led military intervention in neighbouring Yemen, although analysts doubt that will be the case.

“The signalling effect to international market participants (of delaying) will be quite negative, and I think this is not of interest to Saudi financial authorities,” said Sergey Dergachev, senior portfolio manager for emerging market debt at Union Investment Privatfonds in Germany.

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