Deutsche Bank Edition 2018 Securities Services Marhaba Saudi Arabia A comprehensive guide for professionals investing in the Kingdom of Saudi Arabia 1 2 Table of Contents 1. Introduction ...............................................................................................................................7 2. Saudi Arabia Macro Focus .....................................................................................................10 3. Securities Market in Kingdom of Saudi Arabia (KSA) .............................................................14 4. Qualified Foreign Investor (QFI) – Market Entry ....................................................................29 5. Know Your Client (KYC) Framework ......................................................................................35 6. SWAP Agreements - Market Entry .........................................................................................37 7. Investment Limits - Equities ...................................................................................................39 8. Cash Management .................................................................................................................40 9. Clearing and Settlement Environment ....................................................................................42 10. Asset Servicing .......................................................................................................................47 11. Tax Aspects ............................................................................................................................52 12. QFI Obligations ......................................................................................................................54 Appendix 1 - Local Time and Holiday List for 2018 ........................................................................56 Appendix 2 - QFI NIN Application Form (CSD 001) .......................................................................57 Appendix 3 - CMA Approved Jurisdictions......................................................................................58 Appendix 4 - Annex 1 to CMA SWAP Circular ................................................................................59 Appendix 5a - SWAP Agreement Security Transfer Form (CSD 002) ............................................60 Appendix 5b - Confirmation and Disclaimer Letter .........................................................................61 Appendix 6 - Information and Documents to be disclosed by QFIs to AAPs ..................................62 Glossary of Acronyms.....................................................................................................................63 Contact Details and Licenses .........................................................................................................64 3 This document is intended for discussion purposes only and does not (and is not intended to) create any legally binding obligations on the part of Deutsche Securities Saudi Arabia (“DSSA”). This document is issued to the person to whom DSSA has issued it. Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. When making any decision to enter into a transaction, you should rely solely on the final documentation relating to the transaction and not the summary contained herein. This document is not customised to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this document. DSSA is not acting as your financial adviser or in any other fiduciary capacity with respect to any transaction. The transaction(s) or products(s) mentioned herein may not be appropriate for all investors and before entering into any transaction you should take steps to ensure that you fully understand the transaction and have made an independent assessment of the appropriateness of the transaction in the light of your own objectives and circumstances, including the possible risks and benefits of entering into such transaction. You should also consider seeking advice from your own advisers in making this assessment. If you decide to enter into a transaction with DSSA, you do so in reliance on your own judgment. The information contained herein does not constitute and shall not be construed to constitute legal and/or tax advice by DSSA or any of its affiliates. Individuals should consult with their advisors regarding their particular situation. 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Neither this document nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations. You may not distribute this document, in whole or in part, without our express written permission. DSSA SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS DOCUMENT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. Deutsche Securities Saudi Arabia (“DSSA”) is regulated by the Capital Market Authority (CMA). C.R. Number 1010239773 Registered office: Faisaliah Tower, 17th floor, King Fahad Road - Al Olaya District Riyadh, Kingdom of Saudi Arabia P.O. Box 30180 4 Foreword The upgrade of Saudi Arabia’s stock market, the Tadawul, to emerging market status by index provider MSCI sends a strong signal to international institutional investors that the country has made significant progress in elevating its capital markets to international standards, improving levels of corporate governance and market transparency. Saudi Arabia is undergoing a major transformation under the Vision 2030 programme. This has placed Saudi’s economy on a more sustainable path over the long term, as it has already taken steps to diversify its economy and reduce its reliance on oil revenues. The first edition of Marhaba was an innovative guide providing our valued clients with relevant information on the Saudi Arabian market. We hope you enjoy this second edition, with updated Qualified Foreign Investor rules, market procedures and an overview of the implications of MSCI inclusion. Congratulations to the Deutsche Securities Saudi Arabia team for their efforts in publishing the 2018 edition. Tamim Jabr Chief Executive Officer Deutsche Securities Saudi Arabia 5 Foreword Saudi Arabia has made significant strides in the journey towards driving market infrastructure to match international standards, and the recently announced MSCI upgrade of the country to emerging markets is a testament of that commitment. A constantly evolving infrastructure, economic development, strong demographics and several upcoming IPOs make Saudi Arabia an attractive destination for foreign investors. These investors can invest directly in the stock markets via the Qualified Foreign Investor (QFI) rules. The rules are relatively new and bring with them changes to market entry requirements, settlement procedures, documentation required and time to market. This guide aims to answer all questions investors may have about these developments and provides an insight into how we support them in this market. I trust you will find this booklet useful and encourage you to reach out to your local Deutsche Bank representative for any questions you may have. Fiona Gallagher Global Head of Securities Services & Chief Country Officer for Ireland Deutsche Bank 6 1. Introduction Deutsche Bank is pleased to inform our readers that Saudi Arabia has been classified as an Emerging Market within the Morgan Stanley Capital International (MSCI) Emerging Market Index. MSCI will include the MSCI Saudi Arabia Index in the MSCI Emerging Market Index, representing, on a pro-forma basis, a weighting of approximately 2.6% of the index, which is comprised of approximately 32 securities. The promotion of the market is expected follow a two-step inclusion process i.e. the initial inclusion is to become effective from May 2019, the second from August 2019. Currently UAE, Egypt & Qatar combined represent approximately 1.52% of the Index. Estimated weights of similar weighted countries in the MSCI EM can be found below; Estimated Weights of Countries in MSCI EM Index 16.00% 14.20% 14.00% 12.00% 10.90% 10.00% 8.10% 8.00% 6.10% 6.00% 3.30% 3.10% 4.00% 2.60% 2.10% 2.10% 2.00% 0.00% South Taiwan India South Mexico Russia Saudia Thailand