Saudi Capital Market Overview

The legal status, duties and responsibilities of the exchange and depository center are explicitly defined in the Capital Markets Law ("CML") issued by Royal Decree Number (M/30) dated June 16, 2003. Tadawul stock market structure will consist of 20 sectors based on the 2nd level of the Global Industry Classification Standard (GICS).

Exchange Traded Fund (ETF)

QFI: Saudi Arabia’s Scheme for Foreign Institutional Investors

Eligibility Requirements for QFI Registration

Approved Domicile Countries

Investment Limitations 4 applicable to QFI investors

Zakat

Enhancements to The Saudi Market

Independent Custody Model Enhancement

According to the new system, the settlement of cash and securities takes place two days after trading. The time window between trading and settlement could be used by the custodian to confirm trades (executed by the executing broker) with clients and submit rejections to the SDC (accordingly. Settlement is done according to the BIS 2 model where securities are settled on a gross but funds are transferred on a net basis.

Executing Broker can also execute optional Buy-in (available from T+1 to T+4), and finally mandatory Buy-in (executed at T+5) by SDC. As soon as the trade is rejected, it is transferred from the client account under custody to the special broker rejection account and becomes a liability of the executing broker.

QFI Application Guideline

Participation in the QFI Scheme

Application process

QFI Registration Process

Open an Account

Information and documents required to be registered with the CMA as QFI

Details of the applicant's legal form and jurisdiction of incorporation, supported by copies of relevant constitutional documents; A copy of the latest annual report and consolidated financial statements of the applicant or its group (if applicable); Details of any of the following material legal or regulatory sanctions imposed on the applicant in the last 5 years prior to the submission of the application: 1.

An obligation on the part of the applicant to provide the assessing authorized person with all information and documents required under the rules. Confirmation by the applicant of his consent to disclose any information or documents required by the Authority or other government bodies in the Kingdom in accordance with the relevant laws.

Information and documents required from the QFI to open an account in the Securities Depositary Centre and an investment

Information and documents required from the QFI to open a client account in a local bank

Final beneficiaries in addition to their identity (at least natural persons who own 5% according to the statute and its annexes or according to available information). Where applicable, a list of all owners of the foreign investor whose names are included in the partnership agreement, with a copy of their identities. Where applicable, an authorization from the Board of Directors listing the names of the authorized signatories in relation to the account.

Complying with Know Your Customer (KYC) and AML/CFT requirements. the form is prepared by the Monetary Agency of Saudi Arabia). A statement by the foreign investor and/or the relevant AAP to disclose any information to government agencies in the Kingdom as soon as necessary in accordance with the relevant rules and regulations.

Frequently Asked Questions on the Rules for Qualified Foreign Financial Institutions 10

Introductory Questions

What is the definition of a Qualified Foreign investor (QFI)?
What are the securities that the Rules permit QFIs to invest in?
Can a QFI invest in a fund not managed by him and invest directly in the Saudi Exchange?
How can non-resident foreign investors that do not qualify as QFIs be able to gain exposure to the Saudi listed shares?
How is investing through the QFI Framework different from investing through the Swap Agreements Framework?
Are QFIs subject to the Saudi Income Tax Law?
Who is responsible for deducting the withholding tax on dividends distributed to QFIs?
Can QFIs participate in Initial Public Offerings (IPOs)?
Can QFIs vote in general assembly meetings?
Are QFIs able to vote by proxy in relation to the shares they own?
Are QFIs able to vote electronically in respect of the securities owned by them?
Can QFIs nominate representatives for the board of directors of listed companies?
Can GCC citizens and foreign residents invest in listed securities through the QFI Framework?
How do the Rules define GCC citizens?
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
What is the process to submit a waiver from any of the provisions of the Rules in whole or in part?

In contrast, the Swap Agreement Framework does not allow legal ownership of the underlying shares. A natural person with the citizenship of one of the Cooperation Council for the Arab States of the Gulf States. Can a legal person, whose capital is majority owned by citizens or governments of the Cooperation Council for the Arab States of the Gulf governments of the Cooperation Council for the Arab States of the Gulf (GCC) and which holds the citizenship of foreign nationality, submit an application for registration as a QFI.

Yes, the legal entity whose capital is majority owned by citizens or governments of the Gulf Cooperation Council (GCC) and which holds the citizenship of a non-GCC nationality may apply for registration as a QFI submit if he meets the requirements the conditions prescribed by the Rules, because in. As described in the answer to question (14) of this document; the applicant must be a person whose capital is majority owned by citizens or governments of the GCC and who holds citizenship of one of the GCC countries.

Registration Conditions for QFIs

What are the QFI registration conditions set out in the Rules?
What are the jurisdictions that apply regulatory standards acceptable to the CMA?
What do assets under management include?
How assets managed by investment fund will be calculated in the event of appointing more than one foreign portfolio manager?
Does the applicant need to satisfy the investment experience requirement if the applicant was an investment fund?
What are the government related entities?
Are there any conditions that must be met by the foreign portfolio manager?
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 -
Should the foreign portfolio manager be registered as QFI?
Can QFI deal with a GCC portfolio manager?
Can a portfolio manager be an AP licensed by the Authority?
Can a QFI deal with more than one portfolio manager?
Is it possible for QFI to deal with another QFI to manage his investments in listed securities?
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

And in relation to investment funds, including assets owned by the foreign portfolio manager or its group for investment purposes; and. 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 investment experience requirement does not apply if the applicant is an investment fund, but must be met by the foreign portfolio manager, as defined by the foreign portfolio manager described in the Rules.

Yes, QFI can deal with a GCC portfolio manager for the management of its investments on the Saudi Stock Exchange. Yes, it is permissible for QFI to deal with portfolio managers who are licensed by the CMA.

Registration Process

Who is an AAP?
What is the role of the AAP?
How should the AAP notify the CMA with its determination with regard to the QFI registration request?
How long does it take to be registered as a QFI?
When does the CMA’s five-day period specified to review the AAP determination to register a QFI begin?
Is the AAP required to inform the QFI that it has been registered with the CMA?
When will the applicant becomes a QFI?
In the case that a request for registering a QFI is rejected, can an applicant re-apply?
What is the required information to satisfy the “identity of any controllers”
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
Can a QFI delegate the foreign portfolio manager to process the application for registration and sign the assessment agreement with the AAP?
Can an AAP rely on a third party to conduct Know Your Client "KYC"
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
Is the foreign portfolio manager required to obtain authorisation by the CMA in relation to carrying on managing activity when managing listed
Is the foreign portfolio manager required to obtain authorisation by the CMA in relation to carrying on custody activity when safeguarding listed
Is the foreign portfolio manager required to obtain authorisation by the CMA in relation to carrying on advising activity when providing advice to a

The QFI is not required to obtain approval from the CMA in respect of carrying on the principal business of investing in securities listed on the Saudi Stock Exchange. The foreign portfolio manager is not required to obtain approval from the CMA in relation to the exercise of its management activities in managing listed securities owned by a QFI on the Saudi Stock Exchange. Must the foreign portfolio manager obtain permission from the CMA in relation to exercising custody activities in safeguarding listed securities?

The foreign portfolio manager is not required to obtain authorization from the CMA in relation to carrying out custodial activities in securing listed securities belonging to a QFI, without prejudice to the appointment of a local custodian bank authorized by the CMA. The foreign portfolio manager is not obliged to obtain permission from the CMA in relation to carrying out advisory activities by advising a QFI.

Trading

When can a QFI start trading listed securities?
How can the applicant satisfy the registration requirements, the client account opening requirements and the requirements for opening an account
What are the procedures to open a client account?
What are the procedures to open an account with the Depositary Center?
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
Should each QFI open a separate account in the Depositary Centre?
Who is the competent authority responsible for the resolution of disputes resulting from trading?
Can a QFI send trading orders through an international broker that is not registered as a QFI?
Can a QFI establish a discretionary portfolio management (DPM)?
Are existing Swap Agreements' ultimate beneficiary allowed to apply to become a QFIs?
How shares are transferred from a Swap Agreement account to a QFI account?
What are the costs of transferring shares from a Swap Agreement account to a QFI account?
Does transferring shares from a Swap Agreement account to QFI account affect the market value of such shares?
How long does it take to transfer shares from a Swap Agreement account to a QFI account?
Can a QFI be the Foreign Counterparty under a Swap Agreements Framework?

A bank account is deemed to be in the name of a QFI (belonging to a QFI) as indicated in an electronic record maintained by an Authorized Person based on information provided by the QFI to the Authorized Person, either in After that, the QFI can open multiple investment portfolios that are linked to the account. Agreements where the ultimate beneficiary of these shares is the QFI must be transferred to the QFI account in accordance with the procedures issued by the CMA and indicated in the answer to question (60) of this document.

QFI shall submit, through the AAP, a detailed transfer request of all shares underlying the Swap Agreement, the beneficial owner of such shares being the QFI, into its account at the Depository, in accordance with the form prepared for this purpose by the Exchange. The Exchange will take the necessary procedures to carry out the transfer operation and close the Swap Agreement account relating to the QFI.

Investment Limits

Does the ownership limit of 49% of any listed company include the strategic foreign investors in such company?
How can the information on ownership limits in listed companies stipulated in the Rules be obtained?
What are the responsibilities of APs and QFIs with regard to the ownership limits in listed companies stipulated in the Rules?
Who is responsible of complying with the investment limits and disclosure requirements when the QFI engages with foreign portfolio manager?
What are the ownership limits in listed companies stipulated in the Rules that will be automatically controlled by the Saudi Stock Exchange?
What are the consequences for non-compliance of foreign investor with the ownership limits in listed companies stipulated in the Rules?

The QFI is responsible for compliance with investment restrictions and disclosure requirements and for complying with the Capital Markets Act and its implementing regulations as well as stock exchange rules and other relevant laws. Each QFI may not own 10% or more of the shares of any publicly traded issuer or convertible debt instrument of the issuer. The maximum shareholding of any listed issuer or convertible debt instrument of the issuer that may be held by all foreign investors (in all categories, whether resident or non-resident) is 49% in the aggregate.

In the event of non-compliance with the ownership restrictions, the foreign investor shall be deemed to have breached the Rules and the CMA may take such action as it deems appropriate under Article (23) of the QFI Rules, which includes the actions set out in subsection (7/a) which Enables the CMA to exercise any of its other powers under the Capital Markets Act, in particular the power set out in paragraph (a) of Article (59), which provides: "If the Authority appears that any person has cooperated, the engages or will engage in acts or practices that constitute a violation of any provision of this Act or the regulations or rules issued by the Authority or the regulations of the Stock Exchange, the Authority shall have the right to bring legal action before the Board to seek the imposition of an appropriate sanction. include the following: (3) the obligation of the person concerned to take the necessary steps to prevent the violation or to take the necessary corrective measures to address the results of the violation”.

On-going Obligations

Is the QFI required to provide the CMA with notifications?
What is the required period of time for the QFI to notify the AAP if any of the notifiable events occurs?
Are the QFI required to provide the CMA with notifications regarding their ownership in listed companies?
What is meant by a person who is interested in shares or convertible debt instruments?
Is there a special notification form with regards to the ownership in listed companies?
Can a QFI engage with more than one AAP at the same time?
Can a QFI become a client of another AP for the purpose of investing in listed securities?
Can a QFI change its AAP?
How can a QFI change its AAP?
Can the QFI trade listed securities during the 10 day period after the lapse or termination of the QFI assessment agreement?
When should an AAP notify the CMA when the QFI no longer meets the registration conditions?
Is the QFI required to notify the AAP in the event in which the QFI no longer engages with the foreign portfolio manager?
Can the QFI apply for cancellation of QFI registration?
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
Does a QFI need to be aware of other laws or regulations?

A QFI may engage with a replacement AAP within 10 days of termination or termination of the QFI's rating agreement with the replacement AAP. Can the QFI trade listed securities during the 10-day period following the expiration or termination of the QFI's rating agreement. When must an AAP notify the CMA when the QFI no longer meets the conditions for registration.

Yes, the QFI must notify the AAP in the event that the QFI no longer cooperates with the foreign portfolio manager. The AAP must then submit a request to the CMA on behalf of the QFI.

Others

What is the settlement cycle for shares listed in the Saudi Stock Exchange?
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
Can QFIs receive financing from local banks to fund their investments?
What protection is available to minority shareholders in relation to Merger and Acquisition transactions?

If this quorum has not been secured at the first meeting in accordance with the above paragraph, a notification for the second meeting will be sent in the manner defined in Article (91) of the Law on Commercial Companies. If this quorum is not reached at the second meeting, a notice will be sent for the third meeting in the manner defined in Article (91) of this law. Decisions of the extraordinary general assembly shall be approved by a two-thirds majority of the votes of the shares represented in it.

The Board of Directors must, in accordance with the provisions of Article (65) of the Companies Act, make public the resolutions adopted by a. Paragraph (b) of Article 3: All shareholders of the same class of an offeree company must be treated equally by a bidder.

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