Saudi Capital Market Overview Information Memorandum for Qualified Foreign Investors

Transcription

1 Saudi Capital Market Overview Information Memorandum for Qualified Foreign Investors Page 1 of 56

2 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 Enhancements to The Saudi Market QFI Application Guideline Frequently Asked Questions on the Rules for Qualified Foreign Financial Institutions Contact Us Page 2 of 56

3 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

4 Saudi Arabia as an Investment Market Saudi capital markets have a stable regulatory environment Key Market Entities Description Capital Market Authority (CMA) 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 Responsible for Companies Law Responsible for regulating trade and its development and expanding the private sector and all relevant laws and rules Saudi Arabian Monetary Authority (SAMA) The national central bank Regulator of the banking, insurance, and other finance sectors in Saudi Arabia Page 4 of 56

5 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: Securities Depositories Centre (SDC) 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 ownership, securities ownership restriction and release, clearing & settlement related services, corporate actions, 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

6 Market Structure Exchange Information Item Currency Description Saudi Riyal (SAR) Time Zone UTC + 3 Exchange and Depository Trading System Depository and Settlement System Surveillance System Security Identifiers 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, 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 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. Equator CSD by NASDAQ. SMARTS Surveillance by NASDAQ. ISIN (International Securities Identification Number). Page 6 of 56

7 Market Structure (cont d) Exchange Tradable Products: Equities: Opening Days Opening Times Settlement Cycle Minimum Lot Max Total Trading Commission* Exchange Traded Instruments Equities Sunday - Thursday 10:00 15:00 T Share 15.5 bps Tradable Rights Sunday - Thursday 10:00 15:00 T Right 12bps (No Min) * Includes Brokerage, Tadawul and CMA components Tick Sizes Price Bands Tick Size SAR or Below SAR 0.05 SAR to SAR 0.10 SAR and above SAR 0.25 Fluctuation Limits Item Daily Upper Limit Daily Lower Limit Description +10% from previous day s closing -10% from previous day s closing Page 7 of 56

8 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

9 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 Pre- Market Time Opening Times Settlement Cycle Market Making Minimum Lot Total Trading Commission* Security Format REITS Sunday - Thursday 09:30 09:59 10:00 15:00 T + 0 No Market Makers 1 Unit 15.5 bps Electronic Form *Includes Brokerage, Tadawul and CMA components Page 9 of 56

10 Market Structure (cont d) Debt Market Exchange Traded Instruments: Sukuk and Bonds: Opening Days Pre- Market Time Opening Times Settlement Cycle Market Making Minimum Lot Max Total Trading Commission* Security Format Exchange Traded Instruments Sukuk / Bonds Sunday - Thursday 11:15 11:29 11:30 15:00 T + 2 No Market Makers Depends on Issue 10bps (Min SAR500) Electronic Form *Includes Brokerage, Tadawul and CMA components Page 10 of 56

11 Market Structure (cont d) Exchange Traded Fund (ETF) Exchange Traded Instruments: ETFs: Opening Days Opening Times Settlement Cycle Minimum Lot Max Total Trading Commission* Exchange Traded Instruments ETFs Sunday - Thursday 10:00 15:00 T Unit 12bps (Min SAR12) * Includes Brokerage, Tadawul and CMA components Page 11 of 56

12 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; opening 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 1 (Capital Market Authority, 2015) Page 12 of 56

13 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 Page 13 of 56

14 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 Germany Norway Oman 3 (Capital Market Authority, 2016). List is subject to change. * Are only for investment funds. Page 14 of 56

15 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 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 Page 15 of 56

16 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 Non-resident tax rate 7 Capital gains 0% 8 Dividends 5.0% withholding tax 9 7 Taxes are administered by the General Authority of Zakat and Tax 8 All shares acquired through QFI schemes are exempt from capital gains tax as they were acquired after Companies listed on Tadawul are responsible for deducting withholding tax from dividends payable to QFI investors. Page 16 of 56

17 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, The details provided in this Information Memorandum include these amended rules. Other changes announced by CMA which are expected to be implemented during 1 st 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). Page 17 of 56

18 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

19 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. Page 19 of 56

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21 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

22 QFI Application Guideline (cont d) QFI Registration Process QFI AP CMA SDC QFI QFI CMA does not accept AP acceptance reasons (Article 11) Investor Deemed unqualified Assessment (Article 9) 1. Submit Application Specified by CMA. 2. Satisfy Required Documents and Information (Article 7) (Annex 2.1) 1- The registration request along with required documents CMA accepts AP acceptance reasons (Article 11) Registered / Investor Deemed Qualified Open an Account for each QFI (Article 14) 2- Written Declaration (Article 9) Decision YES CMA Review After approval, CMA notifies DC to allow QFI Account opening Notify rejection reasons NO Notify QFI about Registration (Article 12) Receive CMA Notification Notify AP (Article 11) Page 22 of 56

23 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 Page 23 of 56

24 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

25 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: 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

26 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 Anti- Money 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: Page 26 of 56

27 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. Page 27 of 56

28 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: 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. Page 28 of 56

29 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 Page 29 of 56

30 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/ 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. Page 30 of 56

31 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 Counter- Terrorist Financing Rules. Page 31 of 56

32 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. Page 32 of 56

33 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 Page 33 of 56

34 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. Page 34 of 56

35 Page 35 of 56

36 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: 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: 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. Page 36 of 56

37 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 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 Page 37 of 56

38 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? Page 38 of 56

39 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. Page 39 of 56

40 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: Page 40 of 56

41 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: 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 Page 41 of 56

42 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: 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. Page 42 of 56

43 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. Page 43 of 56

44 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. Page 44 of 56

45 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? Page 45 of 56

46 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". Page 46 of 56

47 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 Page 47 of 56

48 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: 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. Page 48 of 56

49 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 Page 49 of 56

50 Acquisition Regulations, the Anti-Money Laundering and Counter Terrorist Financing Rules. Page 50 of 56

51 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. Page 51 of 56

52 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 Page 52 of 56

53 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 Page 53 of 56 or a series of transactions, shares which (taken together with shares held,

54 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. Page 54 of 56

55 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. Page 55 of 56

56 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 Kingdom of Saudi Arabia Main Number: +966 (0) Customer Service: (+966) Fax: +966 (0) QFI@tadawul.com.sa / CSC@tadawul.com.sa / info@tadawul.com.sa Website: 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 Riyadh Contact Centre: FI-QFI@cma.org.sa Website: 56