Saudi regulator plots reforms to aid foreign investors

RegulationsThe Saudi Arabian regulator has approved shifting the settlement cycle for listed shares from T+0 to T+2 in the second half of 2017, a change that would bring the country into line with most of the world.

The Capital Market Authority (CMA) says it also plans to loosen laws regulating foreigners’ direct investment into Saudi shares. The new rules, due to be published in the first half of 2017, will allow foreign institutions with at least $1 billion under management to register as qualified foreign investors. The threshold is currently $5 billion.

In a statement, the authority said it was taking a gradual approach to liberalising the Saudi market, which it hoped would “expand and strengthen the growth of the Saudi capital market, and enhance the expertise of local institutions and investors”.

The amended laws may aim at boosting foreign ownership of Saudi stocks, which remains low despite the market opening to qualified foreign institutions in mid-2015.

Although the low oil price and the country’s faltering economy may explain why some investors are staying away, problems with the registration process for becoming a qualified foreign investor seem also to be a deterrent.

The shift to T+2, in which trades are settled two days after they are executed, would make it easier for foreign institutional investors. Currently, these investors must pre-fund their trades so as to settle them the same day they are executed (required in a T+0 environment).

According to the CMA’s statement, the amended rules will also allow each qualified foreign investor to own up to 10% of outstanding shares from each listed company and for foreign investors as a whole, including expatriates who are resident in Saudi Arabia and overseas investors who buy swaps, to own up to 49%.

Qualified foreign investors are currently only allowed to own up to 5% of outstanding shares in each company and qualified foreign investors as a group cannot own more than 20%, according to a statement released by the authority last year.

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