Saudi Financial Regulator Proposes Controlled Structure for Foreign Ownership

The Capital Market Authority, the main financial regulator for financial markets in Saudi Arabia, has issued new draft proposals for overseas investors looking for exposure in the Kingdom’s financial markets. In the measures reported by the authority, overseas investors will only be allowed to hold 10% of stocks, with individual investors being capped at 5%. The move comes after several years of discussion and consultations as global traders look to take heed of the Middle East’s most liquid equity markets.

The opening up to global investors could earmark a revolutionary change for the oil-rich economy as it aims to compete with economic giants such as the BRICS. Saudi stocks have been faring well despite the global recession and the recent US tapering affecting neighbouring bourses. The liquid trading venues have seen daily trading volume pass the $2 billion mark.

The CMA issued the twenty page draft proposal seeking feedback from participants, the new rules are expected to go live in the next three months. According to the documentation, qualified overseas investors will be required to submit a detailed application to the Saudi Arabian authorities in order to gain qualification.

Apart from global investment management firms, the new measures are expected to boost trading among the retail investor base as expatriate workers residing in the Kingdom will be allowed to invest in domestic markets, a practice previously restricted to Saudi Arabian citizens and nationals of neighbouring countries in the GCC. An estimated 7.5 million expat workers from across the globe contribute to Saudi Arabia's thriving economy.

Saudi Arabia is home to one of the largest retail investor bases in the Middle Eastern and North African region. The country’s Stock Exchange is home to over 5 million registered trading accounts, investors trade with regulated banks and brokerage firms through e-trading platforms.

The most populated GCC nation is a key market for FX and CFD firms looking to delve into the large private investor client base. Spot FX is not regulated by the CMA, however firms that hold a central bank license from other GCC regulators can actively promote margin derivatives in the region.