The long-awaited Saudi Arabian Capital Markets Law has been officially approved, establishing a new era of financial liberalisation in the kingdom.
The law puts in place a new legal and regulatory framework that is expected to open up the capital markets in Saudi Arabia, support the government’s stated aim of privatisation and, through greater efficiency and transparency, increase public participation in the financial markets.
One key aspect of the law is the setting up of the Saudi Arabian Securities and Exchange Commission, whose objective is to protect investor interests, to ensure orderly and equitable dealings in securities business and to promote and develop the capital market.
The new commission, which is the Saudi equivalent of the Securities and Exchange Commission (SEC) in the US, will be the primary regulatory body for the capital market and will have the power to license non-bank financial intermediaries and authorise the offerings of securities to the public.
Until now, the licensing of financial institutions has been strictly limited and controlled by the Saudi Arabian Monetary Agency (SAMA-central bank). The new law allows different models and new types of financial institutions to emerge.
The ability to license brokers clears the way for the establishment of focused investment banking and broking institutions, both foreign and domestic. This will enable new specialised subsidiaries to be set up and new players to enter the market. This is a significant structural shift in the Saudi financial sector, providing new means to finance major infrastructure projects and create fresh investment opportunities.
A critical aspect of the reform is the establishment of the Saudi Arabian Stock Exchange incorporating the national securities depository centre.
The exchange will be a private sector company. Its board will initially consist of nine members, three from the government and six from the shareholders of the exchange. It will have the sole authority to settle and register transactions of securities.
