The Saudi Arabian stock market will open up to investors in the first half of 2015, the government has announced.

It will be the first time that foreign financial institutions will be able to access the $530bn Tadawul All Share Index, the largest closed market in the Middle East.

On the day of the news the Tadawul closed up almost 3%, the highest level it has reached in seven years.

The Saudi Capital Market Authority has published a statement on its website confirming it will take a number of legal procedure before allowing the market to open to foreign financial institutions.

Institutional investors which are restricted to participating in the Saudi market through mutual funds, corporate portfolios and swap arrangements have welcomed the news that they will have direct access.

Ghadir Abu Leil Cooper, head of Emea and frontiers equity team at Baring Asset Management, points out that if the market is fully opened up, it should have a positive impact on corporate governance, which would, in turn, allow valuation multiples to expand.

“It should also allow Saudi Arabian companies better access to capital and more choices too. The ability to list and access to a broader range of funding sources should allow for a more dynamic corporate sector in Saudi Arabia,” he said.

Muhammad Anum Saleem, senior associate, D&P Dhabaan and Partners in association with Eversheds, agrees, saying the decision to allow investors to own the shares directly and exercise voting rights will spur the concept of activist shareholders in the kingdom, as opposed to a purely monetary participation in the listed companies before.

“Companies will benefit by receiving management, accounting or legal guidance in keeping with the best practices practiced by their foreign shareholders. By adopting these practices, the companies can enhance their efficiency and adopt beneficial corporate governance practices,” said Anum Saleem.