Saudi exchange looks to boost foreign investment

20 July 2010

Market regulator looking to develop new products to boost foreign participation

Saudi Arabia’s Capital Market Authority (CMA) is currently working with Bank of New York Mellon on the development of products to help boost foreign investment in the local stock market.

The move is part of the gradual opening up of the Saudi Stock Exchange (Tadawul) to international investors, following the announcement in mid-2008 that foreigners would be able to buy shares on the market through swap agreements.

The CMA and BNY Mellon are working on the introduction of regulations for depository receipts, which allow investors to sell shares to a foreign buyer, through an intermediary which sells the shares on another exchange. This helps foreign investors buy into a company through global markets like the London Stock Exchange.

“We have been working with the CMA for some time now,” says Peter Gotke, vice president of depository receipts at BNY Mellon. “We believe the Tadawul offers the greatest potential for these instruments in the region as it is the biggest market, but is pretty much closed to foreign investors.”

The depository receipts scheme follows the lack of appetite from foreign investors to buy into the Tadawul through swap contracts. Swap contracts make up less than 1 per cent of total trading volumes on the Tadawul.

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