Saudi Arabia has approved its first exchange-traded fund (ETF) which will be accessible to foreigners, marking a significant milestone in efforts to open up the kingdom’s stock exchange, the Tadawul.  

“The Capital Markets Authority [the market’s regulator] announces its approval for Falcom Financial Services to offer the Falcom Saudi Equity ETF and list it on the exchange,” a statement posted on the Tadawul website said on 16 March.

Falcom is a Shariah-compliant investment bank headquartered in Riyadh, with eight offices in the kingdom.

Abdul Rahman al-Tuwaijri, chairman of the Capital Markets Authority (CMA), said earlier this month Saudi Arabia was keen to make the Tadawul more accessible by launching ETFs, without allowing ‘hot money’ to flow in, suggesting that direct foreign investments were not being considered at present.   

In August 2008, swap agreements were introduced on the Tadawul, which allow non-resident foreign investors to trade in local stocks through Saudi intermediaries. Prior to this, foreign investors had only been able to gain access to Saudi stocks through mutual funds.

The Tadawul’s total equity market capitalisation reached $399.24bn at the end of February this year.

Despite being the largest of all the Arab bourses, representing just under half of the total market capitalisation of GCC markets, the Tadawul has traditionally been the most restrictive. It has attracted just $4bn in foreign investment to date.