This year is set to be a year of significant change in the kingdom after the decision by the Council of Ministers on July 22 2014 to sanction the opening of the market to foreign investors for the first time, says Madhur Bhandari, head of HSBC Securities Services, Saudi Arabia. The formal opening to non-GCC investors could lead to a potential upgrade in equity market indices constructed by MSCI, S&P and others.

The Saudi Capital Market Authority (CMA) has published draft Qualified Foreign Institutional Regulations, which outline among other things, the various eligibility criteria for foreign investors to access the market in terms of assets under management and experience. 

An extensive consultation process was undertaken and feedback was obtained from all market participants, which is currently under review with the CMA. The CMA had earlier announced that the market is likely to open up for foreign investment within the first half of 2015.

The Saudi Stock Exchange is also looking to develop systems to make the market more efficient for foreign investors. Plans to introduce an independent custodian model, which aims to recognise custodians as members of the exchange, will significantly enhance the control that the custodians are presently able to exercise on client assets held under their custody.

A dual account structure of a separate custody and trading account is proposed under this model, with the accounts being opened under the same investor ID, providing the custodian the ability to gain an overview of the shares in both the trading and custodian accounts. This will help investors who wish to have one custody account but trade with multiple brokers.