Saudi Arabia

Author: | Published: 1 Jun 2005
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

BAKER BOTTS in association with Al Rasheed Law Office

Address

Riyadh

Telephone

+9661 464 3139

Fax

+9661 464 9264

The ownership restrictions imposed on citizens of the Gulf Cooperation Council countries (GCC) other than Saudi Arabia (Bahrain, Kuwait, Oman, Qatar and United Arab Emirates) with respect to the shares of Saudi Arabian public joint-stock companies are to be removed. An April 5 article in the Arab News stated that a Cabinet meeting of the Council of Ministers approved the change. The new Capital Markets Authority (CMA) will receive instructions to implement the change, in coordination with other government authorities.

Saudi Arabia does not have a physical stock exchange. Rather, local banks trade shares in Saudi Arabian public joint-stock companies by using the Tadawul electronic exchange. Pursuant to the Capital Markets Law, which came into effect on February 24 2004, the regulatory authority responsible for the Tadawul electronic exchange is now the CMA.

There are two ownership restrictions on citizens of GCC countries other than Saudi Arabia with respect to the shares of Saudi Arabian public joint-stock companies. First, they may not own shares of Saudi Arabian public joint-stock companies that are banks or insurance companies. This prohibition is stipulated in an unpublished decision issued by a ministerial committee and has been circulated to the banks in Saudi Arabia. Because the banks in Saudi Arabia process the purchase and sale orders for publicly traded shares on behalf of their clients, they are able to enforce this requirement by not processing orders that would result in a citizen of a GCC country other than Saudi Arabia acquiring shares of a Saudi Arabian public joint-stock company that is a bank or an insurance company.

The second restriction is that a citizen of a GCC country other than Saudi Arabia may not acquire more than 25% of the shares of any Saudi Arabian public joint-stock company. This restriction is stated in the Automated Trading Rules of the Tadawul Trading Rules. This restriction is enforced through the Tadawul electronic exchange, which rejects buy orders that would result in a citizen of a GCC country other than Saudi Arabia acquiring more than 25% of the shares of a Saudi Arabian public joint-stock company.

Representatives from the CMA say that the CMA has not yet started removing these restrictions.