Saudis propose 10% foreign ownership cap for bourse

Saudi Arabia's stock market regulator proposed rules on Thursday for opening the $580 billion market to direct investment by foreign institutions, including a 10 per cent cap on foreign ownership of the market's value.

Among other draft rules, a single foreign investor could own no more than five percent of any listed firm, while all foreign institutions combined could own no more than 20 per cent of a company. The Saudi Capital Market Authority published the draft rules on its website on Thursday.

The Saudi market is the biggest in the Arab world and one of the last major bourses to open up, so the reform is attracting massive foreign interest. Fund managers have estimated the market could draw $50 billion or more of new foreign money in the coming years if it is included in global equity indexes.

Authorities in the world's biggest oil exporter, keen to use the stock market to diversify the economy beyond oil and create jobs, considered opening the market for years. But they held off, concerned about the risk of destabilising stock prices.

Currently, foreigners other than residents of Saudi Arabia and citizens of neighbouring Gulf states can only invest in the market through indirect means such as swaps and exchange-traded funds.

The Capital Market Authority said last month it would open the market in the first half of next year, triggering a surge in the stock index, which has risen 10 per cent since then.

It is expected to issue a final version of its rules after a three-month consultation period.

The draft says foreign institutions would have to qualify for permission to invest. For example, they would need to have at least $5 billion of assets under management and investment experience of no less than five years.

The rules are similar to those used by some Asian markets including China as it opened up over a decade ago, expanding foreign participation in its market via small steps. Riyadh is expected to adopt the same approach, granting investment permits gradually to avoid any sudden flood of foreign funds.

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