Frequently Asked Questions
- Where is foreign ownership limitations published?
- Add Which types of limitations applies to foreign investors?
- What are the exceptions of foreign investor’s ownership limitations?
- How can an investor prevent ownership limitation breach?
- How does Saudi Tadawul Group identify or prevent breaches?
- What should be done in breach of ownership?
- Can investor vote on breach securities?
- Where will foreign ownership information be available, and how frequent is it updated?
- How is foreign ownership information displayed on Saudi Exchange’s website?
- How is a transaction executed?
- What is the settlement of securities?
- What is the settlement of cash?
- When is a settlement of securities completed?
- What is meant by the duration of securities settlement cycle?
- What is the duration for the new settlement cycle of securities’ transactions?
- What does the letter (T) stand for? and what does the added number refer to?
- Which types of securities will the new settlement cycle apply to?
- What is borrowing securities?
- What is short selling?
- What is the purpose of short selling?
- What are the advantages of applying (T+2) settlement cycle?
- Are there limitations on securities ownership?
Where is foreign ownership limitations published?
Saudi Exchange web site publishes limitations on group limits for “Foreign Ownership” and available headroom “Foreign Headroom” reports. Click here.
Add Which types of limitations applies to foreign investors?
- Individual limitations; an investor cannot own more than a certain percentage of a local company. i.e.QFI regulation 10% ownership limit on company level is allowed
- Group limitations; foreign investors in total cannot own more than %49 of a local company.
- are restricted to own some local companies either by company by-laws or by regulator.
What are the exceptions of foreign investor’s ownership limitations?
Strategic Investors may not be applicable to foreign ownership limitation based on Authority decisions.
How can an investor prevent ownership limitation breach?
Daily disclosure of ownership limits consumption on securities published daily in the website. Additional disclosure/reporting for securities where available limit is below a certain threshold (5%) or fully consumed (group limits) in website. The custodians receive FTP files for group and individual limits end of day.
Individual limitations: Check the limitation of each companies by laws; for foreign investors do not invest more than %10 in a local company.
Group limitations: Check Saudi Exchange website available foreign headroom before investment decision.
Restrictions: Not invest in companies published at Saudi Exchange website as restricted to foreign investors.
How does Saudi Tadawul Group identify or prevent breaches?
Individual and Group limitations are identified on each day after settlement completes. Last settled instruction for that symbol code is identified as breach security and its custodian is informed by Edaa, Exchange Member by Saudi Exchange.
Restrictions, settlement instructions are rejected by settlement system. These instructions should be rectified to correct investor at Muqassa system. If not rectified until T+1 end of day Muqassa system automatically rectifies to related brokers house account.
What should be done in breach of ownership?
The investor should sell the securities on Exchange or transfer out from its account in 5 days. The responsible parties and actions are:
a. Breach is identified based on reports generated by Edaa end of day. Edaa sends email to Custodian regarding the breach and investor`s responsibility to sell those within 5 days.
*Custodian notifies investor as soon as it has been notified by Edaa.
*In cases, which investor did not resolve the breach and breach does not originate from a trade; Edaa requests custodian to name a broker for mandatory sell on day 6 following the breach. Custodian should respond the request within the same day.
b. Saudi Exchange notifies the Exchange Member regarding the breach. Broker needs to put the necessary means to prevent investor to take more positions on the security.
c. Daily monitoring of breaches and informing custodian end of day if the breach not rectified breaches via reports at Edaa system. Decrease in the total utilization of the ownership due to other activities (i.e. other foreign investors are selling the same security) won`t remove the responsibility from the originally identified investors to divest securities.
Exchange trade settlement completes on Day 7; in cases which investor did not settle the securities by Day 7:
d. Saudi Exchange instructs broker to sell securities which are not divested by the end of 7th business day following the breach on behalf of the investor. Broker needs to do a mandatory sell on behalf of the investor on the 8th business day following the breach.
e. Saudi Exchange requests broker to nominate a house CSD account at the end of the 7th business day following the breach. Broker needs to respond to the Exchange on the same day. Broker shall also notify the Custodian where the nominated house account is opened.
*On 10th business day evening Edaa checks the record if breach continues, then transfer securities to broker house account. Broker shall segregate those securities in its own books.
*Broker is obliged to sell securities and transfer the principal amount to the client. All the corporate action entitlements should be passed to the client until the sell is completed by the broker. Broker has the right to pass costs associated with transfer and mandatory sell to the client.
Can investor vote on breach securities?
No, issuer will be responsible to make sure the investor does not exercise any voting rights as per the information provided in the share book for this purpose.
Where will foreign ownership information be available, and how frequent is it updated?
Foreign ownership information will be available on Saudi Exchange website, and it will be updated on daily basis after market close.
How is foreign ownership information displayed on Saudi Exchange’s website?
Foreign ownership reports will enclose:
• Maximum ownership percentage per issuer and existing ownership percentage per issuer by all foreign investors.
The foreign ownership information can be found in the “Reports & Publications” web page, under the “Foreign Ownership”.
How is a transaction executed?
A transaction is executed by matching the sell order with the buy order.
What is the settlement of securities?
It is the process of transferring securities of executed transactions from the seller’s investment portfolio to the buyer’s investment portfolio.
What is the settlement of cash?
It is the process of transferring the value of securities for executed transactions from the buyer’s investment account to the seller’s investment account.
When is a settlement of securities completed?
A settlement is complete when securities and cash settlements are complete.
What is meant by the duration of securities settlement cycle?
The new settlement cycle will apply to transactions of securities listed in the market of all types (stocks, sukuk, bonds, Exchange-Traded Funds (ETFs), tradable rights).
What is the duration for the new settlement cycle of securities’ transactions?
All types of securities’ transactions are completed within the timeline on executed trade levelOrder book trades are settled after two business days following the transaction execution date; i.e. (T + 2). For buy in trades (T+0) , negotiated deals and Over-The-Counter (T+0 to T+5) is possible.
What does the letter (T) stand for? and what does the added number refer to?
The letter (T) stands for the term (Trade); i.e. transaction.
As for the added number, it refers to the duration required for completing the settlement of a transaction.
Which types of securities will the new settlement cycle apply to?
The T+2 settlement cycle applies to order book transactions of securities listed in the market of all types (stocks, sukuk, bonds, Exchange-Traded Funds (ETFs), tradable rights). It also applies to Negotiated Deals as the default settlement cycle, unless otherwise specified by the Exchange Member.
What is borrowing securities?
Borrowing securities is the temporary transfer of securities from its owner (lender) to an investor (borrower) with an obligation to return them back to their owner at a future agreed upon date. A borrower shall provide and maintain financial collateral as agreed with the lender and shall at all times be not less than 100% of the current market value of the borrowed securities. The value of the collateral provided may be amended at the discretion of The Capital Market Authority.
What is short selling?
Any sell of a listed security which is borrowed sufficiently to match the sell order, or the seller has an exercisable and unconditional rights to borrow in accordance with the SBL Regulations. Short selling orders must be flagged as short sell when transmitting the order.
What is the purpose of short selling?
Short Selling can be used as a hedging strategy and risk management tool for investors
What are the advantages of applying (T+2) settlement cycle?
- Increasing levels of asset safety for investors, and providing enough time to verify transactions and deal with errors should they occur.
- Activating the role of market makers in the stock market.
- Aligning the Saudi Stock Market with leading global settlement practices, which will open up new listing opportunities for the Saudi market among other global market indexes.
- Developing an investment environment that promotes institutional-level investments and meets necessary requirements for coping with any future changes.
- Allowing short selling on condition of borrowing equities.
Are there limitations on securities ownership?
The Authority or any other Regulatory Body –in accordance with the relevant Laws and Regulations-, from time to time, issue ownership controls with respect to Securities.