The Capital Market Authority of Saudi Arabia (CMA) has published on its website this week the final rules governing investment by qualified foreign investors (QFIs) in listed shares (the Final Rules). The Final Rules are issued pursuant to the resolution of the Board of Commissioners of the CMA number 1-42-2015 dated 15/7/1436H (corresponding to 4/5/2015G).

In addition to publishing the Final Rules yesterday, the CMA published a document that contains answers to frequently asked questions in connection with the Rules, which can be found by accessingthis link. It should be noted that the CMA published a first draft of the Rules (the Draft Rules) on its website on 25/10/1435H (corresponding to 21/8/2014G) and gave market participants a window of 90 days to provide their comments and observations on the Draft Rules.

We set out below a few of the differences between the Final Rules and the Draft Rules:

  • the Final Rules state clearly that QFIs shall have the right to exercise all of the rights attached to the shares that they own, including trading rights issues;
  • for an entity to qualify as a QFI it has to be a bank, brokerage and securities company, fund manager or an insurance company, in each case, that is regulated by a regulator that implements regulatory standards and rules that are equivalent to the CMA rules or that are acceptable to the CMA. The CMA clarifies in the Final Rules that it has the sole discretion when determining whether the foreign regulatory standards are equivalent to those of the CMA or acceptable to it. The CMA in this regard will provide persons duly authorised to conduct dealing activities with a list of jurisdictions that apply regulatory standards equivalent to those of the CMA or that are acceptable to it;
  • in order for an entity to become a QFI, it has to execute an agreement with a person authorised by the CMA (the Investment Agreement) that contains representations and undertakings that are set out in Article 12 of the Final Rules. A provision at the end of Article 12 has been added in the Final Rules to clarify that those representations and undertakings have to be in the form determined by the CMA;
  • entities that wish to apply to become a QFI have to provide a person authorised by the CMA with the information required  in Annex 2.1 to the Final Rules. Annex 2.1 to the Draft Rules required an applicant to provide details of any subsidiaries to the extent that they are a QFI or a client of a QFI. The Final Rules, however, simply require that applicants provide details of all of their subsidiaries;
  • Annex 2.1 to the Draft Rules required applicants to provide details of any legal or regulatory sanctions within the past 10 years in addition to any criminal or civil lawsuits. Annex 2.1 to the Final Rules shortens the time period to five years;
  • the information required for investment funds to become clients of QFIs 
    has been expanded in Annex 2.1 to the Final Rules. In addition to information regarding the place of incorporation of the investment fund, the investment policy and a list of the controlling unitholders of the investment fund, the investment fund (through the relevant QFI) has to provide information regarding the identity of each subsidiary of the investment fund and details of the accounts or subsidiaries through which the investment fund invests in Saudi Arabia in addition to certain declarations;
  • the Final Rules clarify in Article 22 that QFIs shall not have an engagement with more than one person authorised by the CMA; and
  • Annex 3.1 to the Final Rules contains the information that a QFI or a client of a QFI shall provide on an ongoing basis. Annex 3.1 to the Final Rules has been expanded to require QFIs and their clients to provide details regarding any "structural" changes.