Study Material

For Capital Market Examination-1 (CME-1)

of
General Securities Qualifications Certificate

PART 1: Securities Regulations

Fourth Edition
Version No. 1.00
Issued date: Jan. 2018
2
 General Securities Qualification Examination
Preparation Course

This is an educational manual only and the Capital Market Authority accepts no responsibility
for persons undertaking trading or investment in whatever form.

While every effort has been made to ensure its accuracy, no responsibility for loss occasioned
to any person acting or refraining from action as a result of any material in this publication can
be accepted by the Capital Market Authority. The Capital Market Authority stresses that the
material contained in this book is not a legal reference and reference shall always be made to
the copies of rules and regulations posted on the Authority’s website.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system,
or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording
or otherwise without the prior permission of the Capital Market Authority.

Warning: Any unauthorized act in relation to all or any part of the material in this publication
may result in civil claim for damages.

A Learning Map which contains the full syllabus appears at the end of this workbook. Please
note that the examination is based upon the syllabus.

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 Table of Content
PART 1 : REGULATIONS
1 CAPITAL MARKET LAW

Introduction

1.1 Securities
1.1.1 Instruments that are ‘securities’
1.1.2 Instruments that are not ‘securities’

1.2 The securities and exchange commission

1.2.1 The Authority’s objectives

1.3 Other Saudi Arabian institutions

1.3.1 The Saudi Arabian securities exchange
1.3.2 The committee for the resolution of securities disputes

1.3.3 The securities Depository center ‘the center’

1.4 Broker regulations

1.4.1 Requirements of brokers

1.4.2 Activities of a broker

1.4.3 The exchange’s powers

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1.5 Investment funds and collective investment schemes

1.6 Disclosure
1.6.1 Prospectus disclosures

1.7 Regulation of restricted purchases and restricted offers

1.8 Sanctions and penalties for violations (general)

Review questions

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2 MARKET CONDUCT REGULATIONS

Introduction

1.1 Prohibition of market manipulation

2.1.1 Introduction
2.1.2 Market manipulation or deceptive acts and practices

2.2 Insider trading

2.2.1 Introduction
2.2.2 The ‘insider’
2.2.3 Inside information
2.2.4 Disclosure of inside information and prohibition of insider trading

2.3 Untrue statements

2.3.1 Introduction
2.3.2 Untrue statements defined
2.3.3 Liability for untrue statements

Review questions

3 OFFER OF SECURITY REGULATIONS

Introduction

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3.1 The parties
3.1.1 The offeror and the offeree

3.2 Private placement

3.2.1 Conditions to be regarded as a private placement

3.2.2 Secondary market restrictions

Review Questions

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4 LISTING RULES

Introduction

4.1 Issuer’s representative and financial advisor

4.1.1 Issuer’s representative
4.1.2 Issuer’s financial advisor

4.2 Conditions for admission and listing

4.2.1 Applicants
4.2.2 Securities

4.3 Admission to the official list

4.3.1 Underwriting requirements
4.3.2 The prospectus

4.4 Compliance with the listing rules

4.4.1 cancelling or suspending listings

Review Questions

5 SECURITIES BUSINESS REGULATIONS

Introduction

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 1.1 Carrying on securities business
5.1.1 Securities business
5.1.2 Securities business in the kingdom
5.1.3 Persons who may carry on securities business in the kingdom

5.2 Exclusions from authorization

5.2.1 Exclusions

5.3 Securities advertisements

5.3.1 Securities advertisements defined
5.3.2 The authorized person’s role
5.3.3 Exemptions from the need for issue or approval
5.3.4 Territorial scope of securities advertisements
Review Questions
6 AUTHORIZED PERSONS REGULATIONS

6.1 The principles

6.1.1 The eleven principles

6.2 Authorization
6.2.1 Requirements for authorization
6.2.2 Fit and proper criteria
6.2.3 Record keeping requirements

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6.3 Registered persons
6.3.1 Registrable functions

6.4 Conduct of business

6.4.1 Gifts and inducements
6.4.2 Special commission arrangements
6.4.3 Confidential duty
6.4.4 Chinese walls

6.5 Accepting clients

6.5.1 Client classification
6.5.2 Anti – money laundering law
6.5.3 Terms of business
6.5.4 Know your customer requirements

6.6 Client relations

6.6.1 Fiduciary duties
6.6.2 Conflicts of interests
6.6.3 Dealings that involve risk
6.6.4 Suitability
6.6.5 Lending money to customers
6.6.6 Margin

6.7 Reporting to clients

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 6.7.1 Contract notes
6.7.2 Periodic valuations
6.7.3 Transaction record keeping requirements
6.7.4 Employees’ personal dealings
6.7.5 Telephone communications

Review questions
7 INVESTMENT FUNDS REGULATIONS

Introduction

7.1 Offer of investment funds units

7.1.1 Private placement requirements
7.1.2 Public offer requirements

7.2 Procedures and powers of the authority in relation to an application (mutual funds)

7.3 Reporting to unit holders

7.4 Pricing, valuation and redemption

7.5 Independence of the Custodian

7.6 Deferring Redemptions

7.7 Authorization requirements of real estate investment funds

7.8 Procedures and powers of the authority in relation to an application (real estate
investment funds)

7.9 Valuation of real estate funds’ assets

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 7.10 Presenting reports to unit holders
8 MERGERS AND ACQUISITIONS REGULATIONS

Introduction

8.1 General principles

8.2 Rules of offers

8.3 Announcement and takeover timetable

8.4 Responsibilities of offeror and the offeree company

Review Questions
ANTI – MONEY LAUNDERING AND COUNTER TERRORIST
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FINANCING RULES

9.1 Objective of the anti – money laundering (AML) and counter terrorism
financing (CTF) rules

9.2 Definitions

9.3 General application of AML/CTF requirements

9.4 Application of policies and procedures to overseas branches and subsidiaries

9.5 Customer due diligence

9.5.1 Client evaluation
9.5.2 Client identification
9.5.3 Customer risk based due diligence approach
9.5.4 High risk clients
9.5.5 When authorized person must perform odd

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 9.6 Case when verification are not needed
Review Questions
10 CORPORATE GOVERNANCE REGULATIONS

Introduction

10.1 Rights of shareholders

Rights related to shares.
shareholders Assembly
Management of the Shareholders' Assembly
Distribution of Dividends

10.2 Disclosure and transparency

Review Questions

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The educational material presented in this manual covers wide area of knowledge deemed
necessary for those individuals holding positions relating to investment and capital market in
Saudi Arabia. The material covers areas related to regulations governing the capital market and
securities operations in Saudi Arabia. The regulations covered include capital market law, offers
of securities regulations, market conduct regulations, listing rules, securities business regulations,
authorized persons regulations, investment funds regulations, mergers and acquisition regulations,
anti-money laundering and counter terrorist rules, and corporate governance regulations.
However, the depth of required knowledge and comprehension is not the same for all topics
covered in this manual. Thus, in order to more clearly define the topical knowledge required by a
candidate, learning objectives have been specified for all major topics. The levels of coverage for
the treatment of major topics of the contents specification outlines have been identified and
defined. The cognitive skills that a successful candidate should possess and that should be tested
on the examination can be defined as follows:

knowledge: ability to remember previously learned material such as specific facts, criteria,
techniques, principles, and procedures (instructions such as, identify, define, and list falls under
this category).

Comprehension: ability to grasp the meaning of the learned material which can be demonstrated
by (classifying, explaining, distinguishing) between things and materials.

Application: Ability to use previously learned material in new and concrete situations (i.e.
demonstrate, predict, solve, modify, relate.. etc.).

Analysis: Ability to break down material into the component parts so that its organizational
structure can be understood; ability to recognize casual relationships, discriminate between
behaviors, and identify elements that are relevant to the validation of a judgment(i.e. differentiate,
estimate, order).

The Examination is a multiple choice questions which usually come

under different formats. The most prominent ones are outlined below:
i) Closed-Stem
The stem (the part that poses the question) is a complete sentence, and thus concludes with a
question mark. The options (answer alternatives) may be complete or incomplete sentences.

Example Bonds can be described as which of the following?

(A) Securities under the capital market law
(B) Short term securities
(C) Can be issued only by governments
(D) Always trade between banks

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ii) Open-Stem (Sentence Completion)
The stem is an incomplete statement, and the options represent conclusions to the sentence.

Example Dividends are distribution of earnings:

(A) Which is a privilege to existing Shareholders of the company.
(B) Which is a right to existing Shareholders of the company.
(C) Which is a right to existing Shareholders of the company, but a privilege to management
and board of directors of the company.
(D) Which is a right to existing Shareholders of the company, management, and board of
directors of the company.

iii) (Most/Least/Best)
This relative form of questions requires selecting a choice that is either better or worse than the
others. The basis on which the evaluation is to be made is stated in the stem.

Example Which of the following BEST describes an aspect of common stock issued by a
company?
(A) An ownership claim issued to contributors of capital
(B) An ownership claim issued to contributors of all funds to the company
(C) Entitles its holder to regular amount of dividends at the end of each year.
(D) Has priority claim over all other securities issued by a company.

iv) Except or Not

The "EXCEPT" case usually is used when the task is to select the response option that is an
exception to the principle or rule stated in the stem.

Example Money ceases to be a client money for which an authorized person is responsible for
under the following circumstances, except:
(A) The money is paid to the client
(B) The money is paid to a third party on the instructions of the authorized person.
(C) The money is paid into a bank account in the name of the client
(D) The money is paid to the authorized person itself, where it is lawfully due.

v) Complex Multiple-Choice ("Roman Numeral" Format)

This type of question is used when more than one of the option answers may be a correct
response.

1 - Example The Authorized Persons Regulations state that authorized persons must not
induce a client to engage in any transaction by:
I) Offering gifts to the client.
II) Instructing someone else to offer gifts to the client.
III) Offering to participate in the client’s losses and gains.

(a) I only
(b) I and II only
(c) I and III only

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 (d) I, II and III.

Complex Multiple – Choice (“Arabic Numeral” Format)

Example (1) bonds qualify as securities under the capital market law (2) a cheque qualifies as a
security under the capital market law:
(A) (1) is correct (2) is incorrect
(B) (1) is incorrect (2) is correct
(C) Both (1) & (2) are correct
(D) Both (1) & (2) are incorrect

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 LEARNING STRUCTURE:

Part 1: Regulations

1 Capital Market Law 6 Authorized Persons Regulations

2 Market Conduct Regulations 7 Investment Funds Regulations

and Real Estate Investment
Funds Regulations

3 Offer of Security Regulations 8 Mergers & Acquisitions

Regulations

4 Listing Rules
9 AML & Counter Terrorist
Financing Rules
5 Securities Business Regulations
10 Corporate Governance
Regulations

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1.Capital Market Law
Introduction

1.1 Securities
1.1.1. Instruments that are ‘securities’
1.1.2. Instruments that are not ‘securities’

1.2 The securities and exchange commission

1.2.1 The Authority’s objectives

1.3 Other Saudi Arabian institutions

1.3.1 The Saudi Arabian securities exchange
1.3.2 The committee for the resolution of securities disputes

1.3.3 The securities Depository center ‘the center’

1.4 Broker regulation

1.4.1 Requirements of brokers

1.4.2 Activities of a broker

1.4.3 The exchange’s powers

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1.5 Investment funds and collective investment schemes

1.6 Disclosure
1.6.1 Prospectus disclosures

1.7 Regulation of restricted purchases and restricted offers

1.8 Sanctions and penalties for violations (general)

Review Questions

Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

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INTRODUCTION
This chapter deals with the law in relation to capital market transactions in Saudi Arabia. The
legislative instrument that introduced the law is the ‘Capital Market Law’ and amongst other
things it established the major participants in the Saudi Arabian regulatory regime – The Capital
market Authority (CMA), The Securities Market (The Exchange), the Committee for the
Resolution of Securities Disputes (The Committee), and the Securities Depository center(The
Center) . The rules and regulations throughout this chapter apply to securities and the chapter
begins with an outline of exactly what securities are, before considering the regulatory and other
bodies involved in the issue and subsequent trading of securities

1.1 SECURITIES
1.1.1 INSTRUEMENTS THAT ARE ‘SECURITIES’
Learning Objective 1.1.1 – know the types of instruments specifically covered by the CML and
referred to as ‘securities’ therein (Chapter 1, Article 2)

According to the Saudi Arabian Capital Market Law (CML), all of the following are defined as
securities:
 Negotiable shares of companies, including convertible shares.
 Bonds and other negotiable instruments of debt issued by companies, the government, public
institutions or public organizations.
 Investment units issued by investment funds.
 Any instrument representing profit participation rights, and/or any rights in the distribution of
assets.
 Any other rights or instruments which the Board of the capital market authority determines
should be treated as securities, if the Board believes that this would further the safety of the
Exchange or the protection of investors.

1.1.2 INSTRUMENTS THAT ARE NOT ‘SECURITIES’

Learning Objective 1.1.2 – Know the types of instruments specifically excluded from the
definition of 'securities' and therefore not covered by the CML (Chapter 1, Article 3)

Certain instruments are excluded from the definition of securities:

 Commercial bills, such as cheques, bills of exchange, order notes, documentary credits and
money transfers.
 Instruments exclusively traded amongst banks.
 Insurance policies.
 Any other rights or instruments which the Board of the Authority determines should not be
treated as securities, if the Board believes that it is not necessary to treat them as securities in
order to further the safety of the Exchange or the protection of investors.

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1.2 THE CAPITAL MARKET AUTHORITY
1.2.1 THE OBJECTIVES OF THE AUHORITY
Learning Objective 1.2.1 – Understand the extent of the Authority responsibilities under the
CML and the functions that it may employ to achieve those objectives (Chapter 2, Article 5)

The Saudi Capital Market Authority (the Authority) has been established under Capital Market
Law. The Commission is the agency responsible for issuing rules, directives and other
instructions, and implementing the provisions of these regulations

In order to achieve these objectives, the Authority has been given the following responsibilities:

1 - To regulate and develop the Exchange, seeking to develop and improve methods of systems
and entities trading in securities, and develop the procedures that would reduce the risks
related to securities transactions.
2 - To regulate the issuance of securities, and subsequently monitor those securities and their
trading.
3 - To regulate and monitor the works and activities of the parties subject to the control and
supervision of the Commission.
4 - To protect citizens and investors in securities from unfair and unsound practices involving
fraud, deceit, cheating or manipulation.
5 - To seek to achieve fairness, efficiency and transparency in securities transactions.
6 - To regulate and monitor the full disclosure of information regarding securities and their
issuers, the dealing of informed persons and major shareholders and investors, and define and
make available information that the participants in the market should provide and disclose to
shareholders and the public.
7 - To regulate proxy requests and purchase request, and public offers of shares

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1.3 OTHER SAUDI ARABIAN ENTITIES
1.3.1 THE SAUDI ARABIAN SECURITIES EXCHANGE (THE EXCHANGE)
Learning Objective 1.3.1 – Know the objectives of the Exchange (Chapter 3, Article 20)

The market established in the Kingdom of Saudi Arabia for the trading of securities (the Saudi
Securities Exchange, or just the Exchange) is the sole entity authorized to carry out trading in
securities in the Kingdom. The objectives of the Exchange include the following:

1 - Ensuring fair, efficient and transparent listing requirements, trading rules, technical
mechanisms and information relating to securities listed on the Exchange.
2 - Providing reliable and rapid settlement and clearance rules and procedures through its
Securities Depository Center.
3 - Establishing and enforcing professional standards for brokers and their agents.
4 - Ensuring the financial strength and soundness of brokers through the periodic review of their
compliance with capital adequacy requirements, and setting such arrangements to protect the
funds and securities in the custody of brokerage companies.

1.3.2 THE COMMITTEE FOR THE RESOLUTION OF SECURITIES DISPUTES (THE

COMMITTEE)
Learning Objective 1.3.2 – Understand the functionality of the Committee for the Resolution of
Securities Disputes (Chapter 3, Article 25)

The Committee for the Resolution of Securities Disputes is established by the Authority. As its
name suggests, its function is to investigate suits and complaints in relation to the disputes
falling within the provisions of the capital market law and its implementing regulations, and the
regulations of the Authority and the capital market and rules and guidance on public and private
rights. The Committee has the power to issue subpoenas, issue orders, impose sanctions and issue
orders to produce evidence and documents in order to settle suits and complaints.

The Committee's jurisdiction also includes claims against decisions and actions taken by the
Authority or the Exchange. The Committee has the right to issue a decision awarding damages
and/or requests to revert to the original status or another appropriate decision if felt appropriate,
to guarantee the rights of the aggrieved.

The Committee consists of legal advisors specialized in securities and exchanges, and experts in
commercial and financial affairs. The members of the Committee are appointed by the Board for
a renewable, three-year term. In relation to each dispute brought before them, the members of the
Committee must not have any direct or indirect financial or commercial interest with the parties
to the dispute, nor a family relationship up to the fourth degree with either party.

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The Committee is required to start considering each dispute brought to them within a period not
exceeding 14 days from the date the dispute is filed with them. No complaint or statement of
claim can be filed with the Committee without first being filed with the Authority, and unless 90
days had passed since filing, except when the committee notifies the claimant that filing is
allowed before the stated period is over.

All forms of evidence are admissible to the Committee, including electronic or computer data,
telephone recordings, fax messages and e-mail.

The final decision reached by the Committee is enforceable at the Authority’s or Exchange's
request through the government agency responsible for the enforcement of judicial judgments. If
the decision requires compensation or damages to be paid to another party, such parties can
enforce their claims in the same way as any other judicial judgment in civil proceedings.

The Committee's decisions can be appealed within 30 days of the notification of that decision.
The appeal is made to an Appeal Panel. The Appeal Panel has three members representing the
Ministry of Finance, the Ministry of Commerce and Industry and the Bureau of Experts at the
Council of Ministers. The members are appointed by a Council of Minister's decision for three-
year renewable terms. The outcome of the appeal process is final, with the Appeal Panel able to
refuse to review the decisions of the Committee, affirm the decisions, review the decision based
on the record made by the Committee and order such relief as it feels appropriate.

1.3.3 THE SECURITIES DEPOSITORY CENTER ‘THE CENTER’

Learning Objective 1.3.3 – Understand the functionality of the Securities Deposit Center
(Chapter 4, Articles 26 & 27)
Learning Objective 1.3.4 – Know what action may be taken by the Center in the event of an
error in, or any doubt over, the information held by the Center (Chapter 4, Article 27)

The Securities Depository Center (or the Center) is a department established by the board of the
Capital market Authority. It is the sole authority in the Kingdom authorized to settle, clear and
register ownership of securities traded on the Exchange.

As the sole authority registering the property rights of securities traded on the Exchange, the
registered ownership recorded by the Center is conclusive evidence of ownership, together with
the encumbrances and rights associated with those securities.

The Center will provide a certificate of registration if the investor requests it. The Center will also
provide periodic reports to all owners of securities regarding the registered securities held within
the Center.

Confidentiality of holdings at the Center is paramount, with employees of both the Center and the
Exchange, their auditors, advisors and consultants only able to disclose information about owners
of securities as set out in the operating rules of the Center.

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The Center does facilitate requests to correct any errors in the registered information held. If a
person believes that there is an error in the information entered into the register that needs to be
corrected or otherwise amended; he/she should send written details to the Manager of the Center
(or someone appointed by the Manager to receive such requests). Before altering the registered
owner, the Center will give notice, and reasonable opportunity to comment, to the person(s)
currently registered as owners.

1.4 BROKER REGULATION

1.4.1 REQUIREMENTS OF BROKERS
Learning Objective 1.4.1 – Know the requirements of a person wishing to undertake brokerage
business (Chapter 5, Articles 31 & 32)

Acting as a broker is not open to anyone. Normally both the broker and the company for whom
the broker acts must be licensed before undertaking brokerage business. Brokerage business is
restricted to persons holding a valid license and acting as agent for a joint stock company that is
licensed to perform brokerage activities, unless the person is exempted from the requirement

1.4.2 ACTIVITIES OF A BROKER

Learning Objective 1.4.2 – Know the activities that may be carried on by a Broker
(Chapter 5, Article 32)

Brokers are defined in Article 32 of the Capital Market Law. Broadly, a broker includes any joint
stock company commercially carrying out one or more of five activities:
1 - Acting as an intermediary in the trading of securities, including as custodian.
2 - Opening accounts for others to enable them to effect transactions in securities.
3 - Dealing in order to make a market in securities.
4 - Acquiring or placing securities for issuers, or their agents.
5 - Acting as an intermediary in a commercial capacity arranging currency or securities swaps.

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1.4.3 THE EXCHANGE’S POWERS
Learning Objective 1.4.3 – Understand the Exchange's power to carry out investigations and
inspections of licensed brokers or brokers' agents (Chapter 5, Article 35)

The Exchange has the power to carry out investigations and inspections in connection with any
licensed broker or broker's agent, in order to verify whether he has violated, is violating or is
about to violate the rules and instructions of the Exchange.

The Exchange is given the power to require the production of any person's testimony, papers,
books, or other documents that the Exchange deems necessary or relevant to its inquiry. The
Exchange may also require the attendance of witnesses, and is able to inspect records wherever
the records are situated The Exchange exercises its powers to carry out investigations and
inspections by obtaining subpoenas and orders from the Committee for Resolution of Securities
Disputes. The Committee is required to accept requests for subpoenas and orders unless the
Committee establishes that the Exchange's request is arbitrary or involves the abuse of power.

1.5 INVESTMENT FUNDS AND COLLECTIVE INVESTMENT

SCHEMES
Learning Objective 1.5 – Know the Authority’s powers of regulation and control over
Investment Funds and Collective Investment Schemes (Chapter 6, Article 39)

An investment fund is a collective investment scheme aimed at providing investors with an

opportunity to participate collectively in the profits of the scheme. Such schemes are managed by
portfolio managers for specified fees. The Capital market Authority regulates investment funds,
controlling and supervising the portfolio managers and investment advisers. This is done by
setting the rules, directives and instructions in relation to:

1- The organizational structure.

2- Accounting system and operational rules.
3- Investment fund governance and decision making.
4- Security custody procedures and efficient provision of services to customers.
5- Service fees and commissions and management remuneration.
6- Entering into transactions with related parties.
7- Performance reports and the calculation of asset values, unit prices and advertisements.
8- Conditions and requirements for the approval of establishing new funds.
9- Financial and periodic reporting requirements of funds.
10 - Illiquidity requirements and risk limits.
11 - Professional qualifications, personal suitability, financial responsibility and licensing
requirements.

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1.6 DISCLOSURE
1.6.1 PROSPECTUS DISCLOSURES
Learning Objective 1.6.1 – Know what information and statements must be contained in a
prospectus relating to the issue of securities (Chapter 7, Article 42)

Issuers of securities must provide a prospectus to the Authority for approval. The Authority
requires the prospectus to contain the following information and statements:

1 - An adequate description of the issuer, its business activities, the individuals managing the
business (members of the board of directors, executive officers and senior staff) and its major
shareholders.

2 - An adequate description of the securities to be issued, their number, price and the related
rights, privileges and preferences of the issuer's other securities (if any).The description will
also detail how the issue proceeds will be spent, and the commissions levied by persons
connected with the issue.

3 - A statement of the financial position of the issuer and any significant financial data including
the audited balance sheet, profit and loss account and cash flow statement.

4 - Any other information required or authorized by the Authority which it believes necessary to
assist investors and their advisers in making a decision about investing in the securities.

1.7 REGULATION OF RESTRICTED PURCHASES AND

RESTRICTED OFFERS
Learning Objective 1.7.1 – Understand what is meant by a Restricted Purchase of Shares
(Chapter 9, Articles 52 & 54)

Learning Objective 1.7.2 – Understand what is meant by a Restricted Offer for Shares (Chapter
9, Articles 52 & 54)

The Authority has the power to issue rules to regulate purchases, or offers to purchase, a
substantial proportion of the voting shares of a company listed on the Exchange. These rules
specify that where shares are purchased through restricted purchases or restricted offers, certain
provisions may apply.
A restricted purchase is a purchase of shares that results in 10% or more of that class of shares
being beneficially owned, or under the control of the purchaser (or other acting in cooperation
with the purchaser).
A restricted offer for shares is making a public announcement offering to purchase voting shares
if the amount sought would increase the ownership of the offering party to 10% or more of that
class of shares. The restrictions also encompass shares held by others either controlled by the
offering company, or acting in concert with the offering company.

26
Certain provisions apply where any person uses a restricted purchase or restricted offer to
increase his ownership, such that 50% or more of that class of the voting shares listed on the
Exchange are owned by him and/or any others acting in concert. In such circumstances, the Board
of the Authority has the right, within 60 days, to require the person to offer to purchase all of the
remaining shares of that class. The Board determines the terms and conditions of the offer,
although it will not compel the prospective purchaser to offer more than the highest price he paid
for the shares in the previous 12 months.

1.8 SANCTIONS AND PENALTIES FOR VIOLATIONS

(GENERAL)
Learning Objective 1.8 – Know the Sanctions that can be issued by the Committee for the
resolution of securities disputes for violation of any provisions of the law, regulations, and rules
issued by the Authority or the regulations of the Exchange (Chapter 10, Article 59)

In addition to the sanctions and penalties in relation to manipulation and insider trading, the
Authority has the rights to bring other legal actions to the Committee for the Resolution of
Securities Disputes. If it appears to the Authority that a person has engaged in, or is about to
engage in, acts or practices in violation of the law, regulations and rules issued by the Authority
or Exchange regulations, it has the right to bring a legal action before the Committee to seek an
appropriate sanction.

These sanctions include:

1- Warning the person concerned.

2- Obliging the person to cease or refrain from carrying out the act.
3- Obliging the person to take the steps necessary to avert the violation, or correct the violation.
4- Indemnifying those who have suffered as a result of the violation, or paying the gains realized
to the Authority.
5- Suspending the trading of the security.
6- Barring the violating person from acting as a broker, portfolio manager or investment adviser
for such period as is necessary for the safety of the Exchange and the protection of investors.
7- Seizing property.
8- Banning travel.
9- Barring from working with companies whose securities are traded on the Exchange.

In addition, the Authority may also request that the Committee imposes a financial fine upon
those who deliberately violated the provisions of this law, or regulations and rules issued by the
Authority. As an alternative to all of the foregoing, the Board may simply impose a financial fine
on any person responsible for violating the provisions of the law, its implementing regulations
and rules and the exchange regulations. In both cases the financial fine (whether imposed by the
Authority or the committee) cannot be less than SR 10,000 and not exceed SR100, 000 for each
violation committed.

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 1 Review Questions: Capital Market Law

1. According to the Saudi Arabian Capital Market Law (CML), all of the following are
defined as securities except:
I) Shares of companies.
II) Corporate and government bonds.
III) Investment units issued by investment funds.
IV) Commercial bills, such as cheques, bill of exchange, order notes,
documentary credits and money transfers.

(a) I only.
(b) IV only.
(c) I, II and III only.
(d) II, III and IV.

2. Which of the following is NOT one of the responsibilities of the Capital Market
Authority (the Authority) as provided by the Capital Market Law?
(a) To regulate and develop the Saudi Stock Exchange.
(b) To protect citizens and investors in securities from unfair and unsound practices.
(c) To seek to achieve fairness, efficiency and transparency in securities activities.
(d) To increase the investing public’s awareness of the securities market.

3. The Capital Market Law provides for the establishment of the ‘Saudi Stock Exchange’
as the sole entity authorized to carry out securities trading in the country. Which of the
following are the specific objectives of the Exchange as provided by the Law?
I) Ensuring fair, efficient and transparent listing requirements and trading
rules.
II) Providing reliable and rapid settlement and clearance procedures.
III) Establishing and enforcing professional standards for brokers and their
agents.
IV) Ensuring the financial strength and soundness of the individual investors.

(a) I, II and III only.

(b) I, II and IV only.
(c) II, III and IV only.
(d) I, II, III and IV.

28
4. The following are specific activities that are carried out by brokers, as defined in the
Capital Market Law, except:
(a) Acting as a custodian for securities.
(b) Managing portfolios for clients.
(c) Opening of accounts for securities trading.
(d) Dealing in securities for own account for profits.

5. The Capital Market Law provides that an issuer of a security must provide a
prospectus, approved by the Authority. Which of the following is NOT a required
content of the prospectus?
(a) An adequate description of the securities to be issued, their number, price and the
related rights and privileges.
(b) A statement of the financial position of the issuer and any significant financial
data including the audited balance sheet, profit and loss account and cash flow
statement.
(c) A statement containing projections of company’s financial performance including
expected returns to investors.
(d) An adequate description of the issuer, its business activities, senior management
and its major shareholders.

29
2 Market Conduct Regulations
Introduction

2.1 Prohibition of market manipulation

2.1.1 Introduction
2.1.2 Market manipulation or deceptive acts and practices

2.2 Insider trading

2.2.1 Introduction
2.2.2 The ‘insider’
2.2.3 Inside information
2.2.4 Disclosure of inside information and prohibition of insider trading

2.3 Untrue statements

2.3.1 Introduction
2.3.2 Untrue statements defined
2.3.3 Liability for untrue statements

Review Questions

30
Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

31
INTRODUCTION
The market conduct regulations have been produced by the board of the Capital Market Authority
and expand on the rules laid down within Capital Market Law, Covered in Chapter 1 of this
workbook. Because these regulations expand on the outline rules in the Capital Market Law, they
are often referred to as implementing regulations for the Capital Market Law.

2.1 PROHIBITION OF MARKET MANIPULATION

2.1.1 INTRODUCTION
Learning Objective 2.1.1 – Understand the regulations concerning the prohibition of Market
Manipulation and deceptive acts or practices

 Reasonable ground to know

 False or misleading impression
 Artificial prices

(Part 2, Article 2)

Article 2 of the market conduct regulations prohibits any person from engaging in, or
participating in any, manipulative or deceptive acts or practices in connection with an order, or
transaction in a security. Such a prohibition only applies if the person knows, or has reasonable
grounds to know, that the act is manipulative or deceptive.

Furthermore, the regulation prohibits any person from entering an order or executing a transaction
in a security (either directly or indirectly) for the purpose of creating:

 A false or misleading impression of trading activity or interest in that security; or

 An artificial bid price, ask price or trade price for that security, or any related security.

32
2.1.2 MARKET MANIPULATION OR DECEPTIVE ACTS AND PRACTICES
Learning Objective 2.1.2 – Understand the nature of activities that may be considered to be
Market Manipulation or deceptive acts or practices

 Fictitious trades
 No change in beneficial ownership
 Matching purchase and sale transactions
 Escalating / Diminishing price orders
 Orders to manipulate prices

(Part 2, Article 3)

Article 3 of the market conduct regulations outlines examples of the types of action that are
considered as manipulative or deceptive acts or practices. These include:

 Making a fictitious trade;

 Effecting a trade in a security that does not involve a change in its beneficial ownership.

The Article also provides five examples of manipulative or deceptive acts or practices designed to
create a false or misleading impression of trading activity or interest in a security, and for the
purpose of creating artificial prices:

1 - Entering an order (or orders) to buy a security with prior knowledge that an order (or orders)
of substantially the same size, time and price for the sale of that security has been, or will be,
entered.
2 - Entering an order (or orders) to sell a security with prior knowledge that an order (or orders)
of substantially the same size, time and price for the purchase of that security has been, or
will be, entered.
3 - Purchasing, or making offers to purchase a security at successively higher prices, or in a
pattern of successively higher prices.
4 - Selling, or making offers to sell, a security at successively lower prices, or in a pattern of
successively lower prices.
5 - Entering an order (or orders) for the purchase or sale of a security with the intention of:
o Establishing a predetermined sale price, ask price or bid price;
o Effecting a high or low closing sale price, ask price or bid price;
o Maintaining the sale price, ask price or bid price within a predetermined range;
o Entering an order, or a series of orders that are not intended to be execute

33
2.2 INSIDER TRADING
2.2.1 INTRODUCTION
Learning Objective 2.2.1 – Understand the concept of trading in a Security as it is provided in
the market conduct regulations.

 Trading Security
 Price affected by information
 Direct trading
 Indirect trading

(Part 3, Article 4a)

Article 4 of the market conduct regulations provides details on the offence of insider trading
outlined in the Capital Market Law.

In order for the insider trading regulation to apply, the security must be a traded security and there
must be inside information that would affect the price or value of that security, if the information
were made available or disclosed to the general public.

It is then a violation for a person to trade, either directly or indirectly, in that security when in
possession of the inside information.

Direct trading includes executing a trade for any account in which the person has an interest, and
the person making a bid or offer for the security on the Exchange.

Indirect trading includes any one of three situations:

1 - The person executing the trade as agent for another.

2 - Arranging a trade to which a relative or person with whom he has a business or contractual
relationship is party.
3 - Arranging for his agent, or any other person acting on his behalf or his direction, to trade in
the relevant security.

2.2.2 THE ‘INSIDER’

Learning Objective 2.2.2 – Understand what is meant by 'Insider' for the purposes of the Insider
'Trading Regulations (Part 3, Article 4b)

The market conduct regulations also provide clarification of who is considered to be an insider
and what is considered to be inside information. An insider is any of the following:

 A director, senior executive or an employee of the issuer of the security;

 A person who obtains inside information through a family relationship;
 A person who obtains inside information through a business relationship, including from:
o The issuer of the security;
o Any person who has a business relationship with the person who obtains the
information
o Any person who is business associate of the person who obtains the information.

34
 a person who obtains inside information through a contractual relationship, including
obtaining the information from:
o the issuer of the security;
o any person who has a contractual relationship with the person who obtains the
information.

2.2.3 INSIDE INFORMATION

Learning Objective 2.2.3 – Understand what is meant by 'Insider Information' for the purpose of
the Insider Trading Regulations (Part 3, Article 4c)

Inside information is information that meets the following criteria:

 it relates to a security;
 it has not been disclosed to the general public, and is not otherwise available to the general
public;
 a normal person would realize that, in view of the nature and content of the information,
disclosing it or making it available to the public would have a material effect on the price or
value of the security.

2.2.4 DISCLOSURE OF INSIDE INFORMATION AND PROHIBITION OF INSIDER

TRADING
Learning Objective 2.2.4 – Understand the regulations covering the disclosure of Insider
Information and the prohibition of Insider Trading (Part 3, Articles 5 & 6)

The market conduct regulations place restrictions on the disclosure of inside information. An
insider is prohibited from disclosing any inside information to any other person when the insider
knows, or should have known, that it is possible that the other person might trade in the security
affected by the inside information.

Similarly, a person who is not an insider is prohibited from disclosing inside information obtained
from an insider when he knows, or should have known, that it is possible that the person to whom
disclosure is made might trade in the security affected by the inside information.

The Regulation restricts insiders with the benefit of price sensitive, inside information from
trading in the affected securities. Furthermore, those obtaining inside information from others that
know, or should have known, that it is inside information are not allowed to trade in the affected
securities.

35
2.3 UNTRUE STATEMENTS
2.3.1 INTRODUOION
Learning Objective 2.3.1 – Understand the regulations concerning the prohibition of Untrue
Statements (Part 4, Articles 7 & 8)

Articles 7 to 10 of the market conduct regulations relate to untrue statements. In broad terms,
persons are prohibited from making untrue statements if the statement is made to influence the
price of a security, or to induce another person to buy, sell, exercise or refrain from exercising the
rights attached to a security. Such statements could be verbal or in writing. The prohibition also
relates to failing to make a statement where required by the Capital Market Law, its implementing
regulations or the rules of the Exchange or Depositary Center.

This prohibition of untrue statements also extends to rumors. A person is prohibited from
circulating an untrue statement of material fact or a statement of opinion for the purpose of
influencing price or value of a security, or for any other manipulative purpose. Circulating such
rumors is prohibited, whether it is circulated directly or indirectly, and regardless of whether the
statement was made by the person circulating it.

2.3.2 UNTRUE STATEMENTS DEFINED

Learning Objective 2.3.2 – Know the circumstances in which a person may make an Untrue
Statement (Part 4, Article 9)

Article 9 of the market conduct regulations defines untrue statements. The definition hinges upon
the statement of a material fact - a material fact is any information relating to a security that, if the
investor knew about it, would have materially affected the price or value at which the investor
bought or sold the security. Untrue statements must be made in relation to material facts, and a
person is making an untrue statement in any of the following circumstances:
 he makes, or procures another person to make, a statement that is false or inaccurate in a
material respect;
 he makes, or procures another person to make, a statement that contains a misrepresentation
of a material fact;
 he omits a material fact when making a statement

36
2.3.3 LIABILITY FOR UNTRUE STATEMENTS
Learning Objective 2.3.3 – Understand the circumstances under which a person may be liable
for damages in respect of the making of an Untrue Statement (Part 4, Article 10)

There are two circumstances that may result in a person being liable for damages to a claimant for
untrue statements.

The first is where a person made an untrue statement of material fact and the statement is made
for profit (or commercial benefit) and in relation to the purchase or sale of a security. To be
successful the claimant must establish that he was not aware that the statement was untrue, that he
would have acted differently if he had been aware of the untruth and that the person who made
the statement knew (or there was a substantial likelihood that he knew), that the statement was
untrue in relation to a material fact.

The second is where a person fails to make a statement where required by the Capital market
Law, the implementing regulations, or the rules of the exchange. As long as what had been
omitted relates to a material fact, and the damages claim is in relation to a purchase or sale of a
security, damages claim could be successful. The claimant must establish that he was not aware
of the failure to make the statement, and that he would have purchased or sold the security in
question (at all or at the same price) had he known that the statement was omitted.

37
 2 Review Questions: Market Conduct Regulations
1. A person is prohibited to enter a buy order with prior knowledge that a sell order has
been (or will be) made at the same time with the same quantity and price because this
_____________.
(a) Creates unnecessary interest, activities and liquidity in the stock.
(b) Gives an artificial impression that there are interest, activities and liquidity in the
security.
(c) Gives an additional commission to the authorized person.
(d) Helps clients to buy or sell the stock at unfair prices.

2. The following are examples of manipulative or deceptive acts or practices designed to

create a false or misleading impression of trading activity or interest in a security:
I) Entering an order (or orders) to buy a security with prior knowledge that an
order (or orders) of substantially the same size, time and price for the sale of
that security has been, or will be, entered.
II) Entering an order (or orders) to sell a security with prior knowledge that an
order (or orders) of substantially the same size, time and price for the
purchase of that security has been, or will be, entered.
III) Purchasing, or making offers to purchase a security at successively higher
prices, or in a pattern of successively higher prices.
IV) Selling, or making offers to sell, a security at successively lower prices, or in
a pattern of successively lower prices.

(a) I only
(b) I and II only
(c) II and IV only
(d) I, II, III and IV.

3. A person is prohibited to make buy offers in a pattern of successively higher prices

because this is _______________.
(a) Unfair to the seller.
(b) Unfair to the buyer.
(c) Artificially pushing up the price of the stock.
(d) Giving a false impression on the interest, activities and liquidity of the stock.

38
4. The following may be deemed as ‘insider’ as defined in the Market Conduct
Regulations in relation to insider trading prohibition except?
I) A close friend of the employee of the company.
II) A family member of the employee of the company.
III) An employee of the company.

(a) I only.
(b) II only.
(c) I and II only.
(d) I, II and III.

5. A person is making an untrue statement in any of the following circumstances:

I) He makes, or procures another person to make, a statement that is false or
inaccurate in a material respect;
II) He makes, or procures another person to make, a statement that contains a
misrepresentation of a material fact;
III) He omits a material fact when making a statement

(a) I only.
(b) II only.
(c) I and II only.
(d) I, II and III.

39
3 Offer of Security Regulations
Introduction

7.9 The parties

7.9.1 The offeror and the offeree

7.10 Private placement

7.10.1 Conditions to be regarded as a private placement

7.10.2 Secondary market restrictions

Review Questions

40
Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

41
INTRODUCTION
Offers of securities can be classified into three types - public offers, private placements and
exempt offers. Public offers must meet the requirements of the listing rules that will be covered in
more detail in Chapter 4. Private placements requirements are laid down in the Offer of Securities
Regulations and will be covered in this chapter.

3.1 THE PARTIES

3.1.1 THE OFFEROR AND THE OFFEREE
Learning Objective 3.1.1 – Know the definition of an 'Offeror' and an 'Offeree' in respect of
Offers of Securities under the Offers of Securities Regulations (Part 2, Articles 4 & 5)

In any Offer of Securities there is an offeror - the issuer or seller of the securities, and an offeree -
the person(s) to whom the Securities are offered.

The Offers of Securities Regulations defined the offeror to cover someone inviting a person to
make an offer which, if accepted, would give rise to the issue or sale of securities by him.
Furthermore, the definition also embraces the possibility of an issuer making arrangements to sell
the securities through another person.

Similarly, the offer of securities regulations defined an offeree to covers:

 Any person to whom the offeror makes an offer;
 Any person to whose agent the offeror makes the offer, where the agent is acting in his agency
capacity; or
 Any person who receives an offer from a distributor during the offer period - a distributor is a
person to whom the offeror has made an offer of the securities, and the offeror is aware (or
should be aware) that he will make the offer available to others.

42
 3.2 PRIVATE PLACEMENTS
3.2.1 CONDITIONS TO BE REGARDED AS A PRIVATE PLACEMENT
Learning Objective 3.2.1 – Know the conditions that must be fulfilled if an Offer of Securities is
to be regarded as a private placement (Part 5, Article 10)

There is a possibility that securities are issued privately.

The regulations specify that a private placement of securities takes place under any of the
following categories:

(a) The securities are issued by the government of the Kingdom; or a supranational
authority recognized by the Authority;
(b) The offer is restricted to sophisticated investors; or
(c) The offer is a limited offer.

3.2.2 SECONDARY MARKET RESTRICTIONS

Learning Objective 3.2.2 – Know the restriction on Secondary Market activity in respect of
Securities acquired pursuant to a private placement (Part 5, Article 18)

The regulations place restrictions on the resale of the securities that are acquired through a private
placement. The regulations require one of three situations for the offer or sale to be valid:

1 - The price to be paid for the securities is equal to or exceeds Saudi Riyals one million.
2 - If the price of the securities has declined since the date of original purchase, the securities can
only be offered or sold if the original purchase price was equal to or in excess of 1 million
Saudi Riyals.
3 - If (1) or (2) cannot be fulfilled, the securities can only be resold if the transferor sells his
entire holding.

These restrictions continue to apply to sellers and resellers of privately placed securities until the
securities are approved to be listed on the Exchange.

43
 3 Review Questions: Offers of Securities
Regulations

1. In the Offers of Securities Regulations, an ‘offeree’ refers to:

I) Any person to whom the offeror makes an offer.
II) Any person to whose agent the offeror makes the offer, where the agent is
acting in his agency capacity.
III) Any person who receives an offer from a distributor during the offer period -
a distributor is a person to whom the offeror has made an offer of the
securities, and the offeror is aware (or should be aware) that he will make
the offer available to others.

(a) I only.
(b) II only.
(c) I and II only.
(d) I, II and III.

2. The following are some possible forms of private placement , except:

(a) Securities that are issued by the government of the Kingdom of Saudi Arabia.
(b) Securities that are issued by a supranational authority recognized by the Capital
Market Authority.
(c) Securities offered to no more than 60 offerees in the Kingdom, where the
minimum amount payable per offeree is not less than 5 million Saudi Riyals or
equivalent amount
(d) The total value of securities offered by the issuer is more than 5 million Saudi
Riyals or equivalent.

3. Which of the following is Not a condition that enables a person who acquired
securities through a private placement to sell the securities in the secondary
market?
(a) The amount of securities offered has a value of at least One million Saudi Riyals.
(b) The original purchase value of the securities offered is at least One million Saudi
Riyals.
(c) The transfer is made to the original underwriter
(d) The entire holding is sold to only one transferee.

44
4 Listing Rules
Introduction

4.1 Issuer’s representative and financial advisor

4.1.1 Issuer’s representative
4.1.2 Issuer’s financial advisor

4.2 Conditions for admission and listing

4.2.1 Applicants
4.2.2 Securities

4.3 Admission to the official list

4.3.1 Underwriting requirements
4.3.2 The prospectus
4.3.3 Cancelling or suspending listings

Review Questions

45
Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

46
INTRODUCTION
This chapter explains the detailed rules that apply to companies seeking to have their securities
(shares and/or debt instruments) traded on the Main Market or the Parallel Market. Companies
whose securities are admitted to the Exchange and described as being listed companies. The
company needs to provide certain information to potential investors in the form of a prospectus.
The rules- known as the 'Listing Rules' - detail the requirements. These rules are administered by
the Capital Markets Authority. Note that in this chapter, any reference to securities will exclude
units in investment funds and contractually-based securities.

LISTING RULES OF THE MAIN MARKET

4.1 ISSUER’S REPRESENTATIVE AND FINANCIAL AND
LEGAL ADVISOR
4.1.1 ISSUER’S REPRESENTATIVES
Learning Objective 4.1.1 – Know the requirement for an issuer to appoint a representative to act
on its behalf before the Authority (Part 1, Article 4)

Each issuer intending to admit its securities to be traded on the Exchange must appoint one of its
board members and one of its executives to act as its representative. The issuer must provide
contact details of its representative, including work telephone numbers, mobile phone numbers,
fax and e-mail.

4.1.2 ISSUER’S FINANCIAL ADVISOR

Learning Objective 4.1.2 – Know the requirement to appoint a financial advisor, Its obligations
and duty of care (Part 2, Articles 5, 6 ,7 & 10)

If the registration and admission to listing of shares to the Exchange requires the production of a
prospectus, the issuer must also appoint an independent financial advisor. Moreover, the issuer
must appoint a financial advisor in case of voluntary cancellation of listing or submission of a
request to reduce the capital. In cases where there is no mandatory requirement to appoint a
financial advisor, the Capital Markets Authority is entitled to require a financial advisor to be
appointed to provide advisory services to the issuer regarding the application of the Listing Rules
and the Capital Market Law and its implementing Regulation.

Broadly, the role of the financial advisor is to provide the issuer with advice on the application of
the various rules and regulations within the Capital Market Law and its implementing regulations.
There is an expectation that the financial advisor will provide advice and guidance with the
appropriate duty of care.

47
Specifically, on an application of the issuer for securities to be listed in the market, the financial
advisor must:

1 - Be the point of contact with the Authority regarding the application.

2 - Ensure that the issuer has satisfied all the conditions required for registration and admission
of its securities to the market by conducting due diligence and making enquiry from the issuer
and its advisors.
3 - Provide any information and clarification that may be required by the Capital Market
Authority to verify whether the issuer has complied with Capital Market Law, the Listing
Rules and the Offers of Securities Regulations. Such information must be provided in such
form and within such time limit as the Authority requires.

4.1.3 ISSUER’S LEGAL ADVISOR

Learning Objective 4.1.3 – Know the requirement to appoint a legal advisor, Its obligations and
duty of care (Part 2, Articles 5, 8,9 & 10)

If the registration and admission to listing of shares to the Exchange requires the production of a
prospectus, the issuer must also appoint an independent legal advisor. Moreover, the issuer must
appoint a legal advisor in case of voluntary cancellation of listing or submission of a request to
reduce the capital. In cases where there is no mandatory requirement to appoint a legal advisor,
the Capital Markets Authority is entitled to require a legal advisor to be appointed to provide
advisory services to the issuer regarding the application of the Listing Rules and the Capital
Market Law and its implementing Regulation.

The legal advisor shall be committed to whatever required by the profession when providing
advice to the issuer in matters related to the registration and admission to listing of shares.

4.2 CONDITIONS FOR ADMISSION AND LISTING

4.2.1 CONDITIONS RELATED TO SECURITIES ISSUER
Learning Objective 4.2.1 – Know the requirements of an issuer of a securities (Part 3, Article
11)

The following requirement must be fulfilled upon submission of an application for registration
and admission of listing to the market:

1. The issuer must be a Saudi joint stock company, except where the provisions of Article
14 of these Rules apply.
2. On an application for registration and admission to listing of securities, the issuer must
have been carrying on, either by itself or through one or more of its subsidiaries, a main
activity for at least three financial years under substantially the same management.

48
 3. On an application for registration and admission to listing of securities, an issuer must
have prepared its audited financial statements covering at least the previous three
financial years, prepared in accordance with the accounting standards approved by
SOCPA. The period covered by the most recent audited financial statements must have
ended no more than six months prior to the date of approval of the prospectus. If the
period covered by the most recent audited financial statements has ended more than six
months prior to the expected date of approval of the prospectus. The Authority may
require audited financial statements covering any period that it deems appropriate from
the date of the end of the period covered by the latest audited financial statements until
the expected date of approval of the prospectus.
4. On an application for registration and admission to listing of securities, where the issuer
has undergone restructuring or has been subject to an alteration in capital using external
financing (including through any shareholder current account), the issuer shall not be
eligible to apply for registration and admission to listing until one financial year has
elapsed since the date of completion of the restructuring/alteration in capital.
5. The senior executives of the issuer must have an appropriate expertise and experience for
the management of the issuer’s business.
6. An issuer must have, on its own or with its subsidiaries, a sufficient working capital for
the 12 months immediately following the date of the publication of the prospectus.
7. The issuer must provide the Authority with reviewed interim financial statements if such
statements were issued during the application period.
8. An application for registration and admission to listing may be accepted if it does not
meet the requirements of this Article if the Authority is satisfied that such listing will be
in the interest of investors and that the investors have received the necessary information
to arrive at an informed judgment concerning the issuer and the securities that are the
subject of the application.

4.2.2 SECURITIES LISTING CONDITIONS

Learning Objective 4.2.2 – Know the conditions relating to registration and admission to (Part 3,
Article 12,13,15)

General Conditions Relating to Registration and Admission to Listing of Securities

To be registered and admitted to listing, the securities must conform with the statutory conditions
in the Kingdom; and be duly authorised according to the requirements of the issuer’s articles of
association or other constitutional documents.

Moreover, The securities must be freely transferable and tradable. Any restriction on
transferability must be approved by the Authority and all investors must be provided with
appropriate information to enable dealings in such securities to take place on an open and fair
basis.

In addition, the securities must be registered and settled centrally through the Depository Centre.

49
In regard to the registration and admission to the listing of shares, there must be a sufficiently
liquid market for the shares that are the subject of the application for registration and admission to
listing, as follows:

1) there must be at least 200 public shareholders; and

2) at least 30% of the class of shares that are the subject of the application are owned by the
public.

The Authority may permit a lower percentage or a lower number of shareholders if it considers
that it is appropriate in view of the number of shares under the same class and its distribution to
the public. For this purpose, public means any person except the following:

1. The issuer’s subsidiaries.

2. The issuer’s substantial shareholders.
3. The issuer’s board members or executives.
4. Board members or executives of the issuer’s subsidiaries.
5. Board members or executives of the issuer’s substantial shareholders.
6. Relatives of the persons mentioned in points no.1,2,3,4 and 5 hereinabove.
7. Any company governed by persons mentioned in points no. 1,2,3,4,5 and 6 hereinabove.
8. Persons work in agreement and hold jointly (5%) or more of the class of the shares to be
listed.

Applications for listing must relate to the entire class of the shares of the issuer. Where none of a
particular class of shares is listed, the application must relate to all shares of that class in issue
and proposed to be issued. If the shares of that class are already listed, the application must relate
to all further shares of that class that are proposed to be listed.

The expected aggregate market value of all securities to be listed must be at least:

1 - 100 million Saudi Riyals for shares, unless otherwise shares of the same class have been
already listed.
2 - For debt instruments, 100 million Saudi riyals, if the issuer does not have any listed
securities; and 50 million Saudi riyals in case the issuer has listed securities.

The Capital Market Authority may admit securities of a lower value if it is satisfied that there will
be a sufficiently liquid market for the securities concerned.

50
4.3 ADMISSION TO THE OFFICIAL LIST
4.3.1 UNDERWRITING REQUIREMENTS
Learning Objective 4.3.1 – Know the requirement for the issue to be underwritten (Part 4,
Article18)

The offer of securities must be fully underwritten by an underwriter authorised by the

Authority and must comply with the prudential rules issued by the Authority.

Debt instruments and convertible debt instruments will be regarded as fully underwritten if the
settlement risk in relation to the issue of the instruments is underwritten by an underwriter
authorised by the Authority.

The underwriting requirements shall not apply to capitalisation issues

4.3.2 THE PROSPECTUS

Learning Objective 4.3.2 – Know the basic contents of the prospectus (Part 4, article12)

The prospectus must be in Arabic and contain all information which is necessary to enable an
investor to make an assessment of the activities, assets and liabilities, financial position,
management and prospects of the issuer and of its profits and losses and must include information
in relation to the number and price of the securities and any obligations, rights, powers and
privileges attaching to them.

The minimum information that needs to be included in the prospectus is prescribed in Annexes to
the Listing Ru1es.

4.3.3 CANCELLING OR SUSPENDING LISTINGS

Learning Objective 4.3.3 – Know the circumstances under which the Authority may cancel or
suspend a listing (Part7, article 35)

The Authority may at any time suspend or cancel the listing as it deems fit, in any of the
following circumstances:
1) the Authority considers it necessary for the protection of investors or the maintenance of an
orderly market;
2) the issuer fails, in a manner which the Authority considers material, to comply with the Capital
Market Law and its Implementing Regulations including a failure to pay on time any fees or fines
due to the Authority;
3) the liquidity requirements set out in paragraph 4.2.2 of this section Rules are no longer met;
4) the Authority considers that the issuer does not have a sufficient level of operations or
sufficient assets to warrant the continued trading of its securities on the Exchange;
5) the Authority considers that the issuer or its business is no longer suitable to warrant the

51
continued listing of its securities on the Exchange; or
6) in the case of crossly-listed securities, the listing of the foreign issuer’s securities has been
suspended or cancelled elsewhere.

52
PARALLEL MARKET LISTING RULES

Definition of Qualified Investor

Learning Objective: know the definition of the qualified investor ( Article 3)

The Qualified Investor means any of the following persons:

1) Authorised Persons act for their own account.

2) Clients of a person authorised by the Authority to conduct managing activities provided
that this Authorised Person has been appointed as an investment manager on terms which
enable it to make decisions concerning the acceptance of an offer and investment in the
Parallel Market on the client’s behalf without obtaining prior approval from the client.
3) The Government of the Kingdom, any government body, any supranational authority
recognised by the Authority or the Exchange, and any other stock exchange recognised
by the Authority or the Securities Depository Center.
4) Government-owned companies either directly or through a portfolio managed by a person
authorised to carry out managing activities.
5) Companies and funds established in a member state of the Cooperation Council for the
Arab States of the Gulf.
6) Investment Funds.
7) Qualified Foreign Investors.
8) Any other legal persons allowed to open an investment account in the Kingdom and an
account at the Depositary Center.
9) Natural persons allowed to open an investment account in the Kingdom and an account at
the Depositary Center, and fulfil any of the following criteria:
a. has conducted transactions in security markets of not less than 40 million Saudi
riyals in total, and not less than ten transactions in each quarter during the last
twelve months.
b. the average size of his securities portfolio shall exceed 10 million Saudi
riyals during the last twelve months.
c. holds the General Securities Qualification Certificate which is recognised by
the Authority.
10) Any other persons prescribed by the Authority.

53
Eligible classes to participate in the Parallel Market

Learning Objective: know the eligible classes to participate in the parallel market ( Article 4)

a) The offer, as per these Rules, is confined to the categories of Qualified Investors. The issuer's
financial advisor is responsible for ensuring the compliance with this paragraph.
b) Trading shares listed in the Parallel Market is confined to Qualified Investors. The authorised
person, through which shares are traded in the Parallel Market and the rights issue of these
shares, is responsible for ensuring the compliance with this paragraph.
c) In all cases, authorised persons shall ensure, prior to the Qualified Investors participation in
the Parallel Market, that their clients of qualified investors are aware of risks involved in
investing in the Parallel Market, and obtain a written confirmation from them stating that they
are informed of these risks.
As an exception from paragraph (b) of this Article , shareholders of the issuer, other than
Qualified Investors, who owned their shares prior to listing them in the Parallel Market, may
trade in these shares and rights issue issued by that issuer. The authorised person, through
which shares are traded in the Parallel Market and the rights issue of these shares, is
responsible for ensuring the compliance with this paragraph.

Appointment of representatives of the issuer

Learning Objective: know the roles and responsibilities related to the representative of the issuer
( Article 5)

The issuers responsibilities related to the representative are as follows:

a) The issuer must appoint two representatives, one of whom must be a director and the other
must be a senior executive, to act as its representatives before the Authority for all purposes
relating to the Capital Market Law and these Rules.

b) The issuer must provide details in writing of how its representatives may be contacted
including office, mobile and fax telephone numbers, and electronic mail address.

54
Appointment of Advisors

Learning Objective: know the roles and responsibilities related to the advisors of the issuer (
Article 7)

The issuers responsibilities related to the advisors are as follows:

a) Where an issuer makes an application for registration and admission to listing of its shares in
the Parallel Market that requires the production of a Prospectus or Shareholders' Circular
(Where applicable), the issuer must appoint a financial advisor.

b) Where an issuer whose shares are listed in the Parallel Market undertakes a voluntary
cancellation of listing, the issuer must appoint a financial advisor.

c) Where an issuer whose shares are listed in the Parallel Market submits an application to
reduce its capital, the issuer must appoint a financial advisor.

d) The Authority may, at all times, require the issuer to appoint a financial advisor, a legal
advisor, or any other advisor to advise the issuer on the application of the provisions of these
Rules, the Capital Market Law or its Implementing Regulations.

Requirements and obligations of the financial advisor

Learning Objective: know the requirements and obligations of the financial advisor ( Article 8)

The financial advisor should meet the following requirements:

a) The financial advisor must be authorised by the Authority.

b) On an application of an issuer for registration and admission to listing of shares in the

Parallel Market, the financial advisor must:

1) be the main point of contact for the Authority in relation to the application.

55
 2) satisfy itself, having conducted due diligence and made enquiry from the issuer and its
advisors, that the issuer has satisfied all conditions required for the registration and
admission to listing of the shares and has satisfied all other relevant requirements;

3) provide the Authority with any information or clarifications in such form and within
such time limit as the Authority may require for the purpose of verifying whether the
financial advisor and the issuer have complied with the Capital Market Law and its
Implementing Regulations.

4) provide the Authority with a letter in the form set out in Annex 3 to these Rules.

If matters which should be taken into account by the Authority come to the attention of the
financial advisor during the period between the submission of the letter described in sub-
paragraph (4) of paragraph (b) of this Article and listing of the issuer's shares, the financial
advisor must notify the Authority thereof without delay.

Conditions relating to Issuers

Learning Objective: know the Conditions relating to Issuers ( Article 9)

The issuer should meet the following requirements:

a) The issuer must be a Saudi joint stock company or a joint stock company which the majority
of its capital is owned by citizens of a member state of the Cooperation Council for the Arab
States of the Gulf and enjoys a nationality of one of them.

b) When applying for registration and admission to listing in the Parallel Market, the issuer
must have been carrying on, either by itself or through one or more of its subsidiaries, a main
activity for at least one financial years.

c) When applying for registration and admission to listing in the Parallel Market, the issuer
must have prepared its audited financial statements covering at least the preceding financial
year which were prepared in accordance with the accounting standards approved by SOCPA.

56
d) An application for registration and admission to listing in the Parallel Market may be
accepted if it does not meet the requirements of this Article if the Authority is satisfied that
such listing will be in the interest of investors, and the issuer has provided the investors with
the necessary information to arrive at an informed judgment concerning the issuer and the
shares that are the subject of the application.

General conditions relating to registration and admission to listing of the Issuer's Shares in
the Parallel Market

Learning Objective: know the General conditions relating to registration and admission to listing
of the Issuer's Shares in the Parallel Market ( Article 10)

a) For the registration and admission to listing in the Parallel Market, shares must:

1) conform with the statutory conditions in the Kingdom; and

2) be duly authorised according to the requirements of the issuer’s articles of association or

other constitutional documents.

b) The issuer's board approval on offering its shares must be obtained prior to applying for
registration and admission to listing of shares in the Parallel Market.

c) The Shares must be freely transferable and tradable. Any restriction on transferability must
be approved by the Authority, and all investors must be provided with appropriate
information to enable dealings in such shares to take place on an open and fair basis.

d) The Shares must be registered and settled centrally through the Securities Depository
Centre.

The issuer whose shares are listed in the Parallel Market shall only issue and offer new shares in
pursuance to these Rules.

57
Article 11: Conditions relating to the registration and admission to listing of shares in the
Parallel Market
Learning Objective: know the conditions relating to the registration and admission to listing of
shares in the Parallel Market ( Article 11)

a) There must be a sufficiently liquid market for the shares at the time of listing in the Parallel
Market as follows:
1) there are at least 50 public shareholders in case the expected aggregate market value for
all shares to be listed exceeds 40 million Saudi riyals, or 35 shareholders in case the
expected aggregate market value for all shares to be listed is less than 40 million Saudi
riyals; and
2) at least 20% of the class of shares that are the subject of the application are owned by
the public.
The Authority may permit a lower percentage or a lower number of shareholders if it considers
that it is appropriate in view of the number of shares under the same class and its distribution to
the Qualified Investors.

b) The requirements set forth in paragraph (a) shall constitute a continuous obligation on the
issuer. If the issuer at any time, following having its shares admitted to listing in the Parallel
Market, becomes aware that these requirements are no longer met, the issuer must take the
necessary remedial action to ensure that the relevant requirements are met.
c) Where none of the shares of a particular class are already listed in the Parallel Market, the
application for the registration and admission to listing in the Parallel Market must relate to
all shares of that class issued or proposed to be issued. If the shares of that class are already
listed in the Parallel Market, the application must include all further shares of that class
which are proposed to be issued.
d) Except where shares of the same class are already listed in the Parallel Market, the expected
aggregate market value, at the date of listing, of all shares to be listed must be at least SR 10
million in all cases. The Authority may admit shares of a lower aggregate market value if it
is satisfied that there will be a sufficient liquid market for the shares concerned.

58
Application for registration and admission to listing in the Parallel Market, and supporting
documents

Learning Objective: know the application for registration and admission to listing in the Parallel
Market, and supporting documents ( Article 12)

An issuer seeking registration and admission to listing of its shares in the Parallel Market must
submit an application to the Authority for approval which contains the information required under
these Rules, and pay any fees set by the Authority.

The Prospectus or Shareholders' Circular

Learning Objective: know the Prospectus or Shareholders' Circular ( Article 14)

a) The Shareholders' Circular must contain the information set forth in Annex 5 of these Rules,
in case of capital increase through issuing new shares for debt conversion, or the information
set forth in Annex 6 of these Rules if the capital increase is for acquisition of a company or
purchasing an asset. The circular may include additional information, provided that such
information must be within the requirements set forth set forth in article (32) or Annex 4 of
the Listing Rules (as applicable).
b) The draft Prospectus or the Shareholders' Circular (as applicable) provided to the Authority
shall be in Arabic.
c) The draft Prospectus or the Shareholders' Circular (as applicable) provided to the Authority
must be annotated to indicate where the information required by the applicable paragraphs of
these Rules has been included and any changes from any previous drafts must be clearly
marked. Each draft Prospectus must indicate the draft number and the submission date on its
cover page.

59
Approving the Prospectus or Shareholders' Circular

Learning Objective: know the requirements of the Prospectus or shareholders' circular ( Article
15)

a) The Prospectus or Shareholders' Circular (as applicable) must not be published and made
available to the public without the Authority's approval; the issuer, after obtaining a written
approval from the Authority, may make the final draft of the Prospectus or Shareholders'
Circular available to those specified by the Authority.
b) As an exception from paragraph (a) of this article, the issuer's financial advisor, before
obtaining the Authority's approval on the Prospectus or Shareholders' Circular (as applicable),
may present information on the issuer and its financial statements to a group of Qualified
Investors without mentioning the issuer's name, to know to what extent investors wish to
participate in the subscription for the issuer's shares once offered.
c) The Authority approves the Prospectus or Shareholders' Circular (as applicable) if it is
satisfied that the information contained in them meet the minimum requirements of the
Capital Market Law and these Rules.
d) The Authority will review the Prospectus or Shareholders' Circular (as applicable) within (30)
days of receiving all information and documentation required.
e) If, having reviewed the Prospectus or Shareholders’ Circular (as applicable), the Authority
considers that the proposed offer of shares may result in a breach of the Capital Market Law
or its Implementing Regulations then it may take any of the following actions:
1) carry out any enquiries which it considers appropriate;

2) require the issuer or its representative to appear before the Authority to answer questions
and explain any matters that the Authority considers relevant to the application;

3) require the applicant or third party to provide additional information or to confirm, in

such manner as the Authority may specify, that the information provided is accurate; or

4) defer making a decision for such period as may be reasonably necessary to carry out
further study or examination.

60
f) If, having taken action pursuant to paragraph (e) of this Article, the Authority determines that
the offer based on the Prospectus or the capital increase based on the Shareholders' Circular
may result in a breach of the Capital Market Law or its Implementing Regulations, the
Authority shall issue a "notification" to the issuer stating that the Prospectus or Shareholders'
Circulars (as applicable) has not been approved, or publish a "notice" prohibiting the offer,
capital increase, sale or transfer of title of the shares to which the Prospectus or Shareholders'
Circulars relates.

Conditions of transition to the Main Market

Learning Objective: know the conditions of transition to the Main Market ( Article 27)

An issuer whose shares are listed on the Parallel Market may only make an application for listing
on the Main Market after two calendar years from the day on which its shares were listed on the
Parallel Market.

61
 4 Review Questions: Listing Rules

1. If the issue of securities to be admitted to the official list requires the production of a
prospectus, the issuer must also appoint a _______________
(a) Financial advisor
(b) Legal advisor
(c) Business advisor
(d) Answers (a) and (b).

2. When arranging for an application of the issuer for securities to be admitted to the
official list, the financial advisor must:
I) Ensure that the issuer has satisfied all the conditions required for admission
of its securities to the official list by conducting due diligence and making
enquiry about the issuer and its advisors.
II) Provide any information and clarification that may be required by the
Capital Market Authority to verify whether the issuer has complied with the
Capital Market Law, the Listing Rules and the Offers of Securities
Regulations.
III) Provide such information in the required form and within such time limit as
prescribed by the Capital Market Authority.

(a) I only.
(b) I and II only.
(c) II and III only.
(d) I, II and III.

3. To be admitted to the official list, the applicant must be a Saudi joint stock company
and normally the company must have been carrying on an independent business, with
substantially the same management for a minimum period of _____________ .
(a) Two years.
(b) Three years.
(c) Four years.
(d) Five years.

4. Each issuer intending to admit its securities to be traded on the local Exchange
must appoint …………………. To act as its representative to the CMA
concerning the listing
a. One of its directors or delegated officer.
b. Its underwriter.
c. Its financial advisor.
d. The company external auditor.

62
5. One of the conditions for listing is that at least 30% of the shares must be owned
by the public. In this relation, “public” means any persons who Except:

a. The issuer’s subsidiaries.

b. The issuer’s substantial shareholders.
c. The issuer’s board members or executives.
d. All the above

6. Trading shares in the Parallel Market is confined to:

a. All investors.
b. Qualified investors.
c. Foreign investors.
d. None of the above.

7. Registration and admission to listing of shares in the Parallel Market is subject,

among others, to:
a. at least 30% of the class of shares that are the subject of the application are
owned by the public.
b. at least 40% of the class of shares that are the subject of the application are
owned by the public.
c. at least 20% of the class of shares that are the subject of the application are
owned by the public.
d. at least 51% of the class of shares that are the subject of the application are
owned by the public.

63
5 Securities Business Regulations
Introduction

5.1 Carrying on securities business

5.1.1 Securities business
5.1.2 Securities business in the kingdom
5.1.3 Persons who may carry on securities business in the kingdom

5.2 Exclusions from authorization

5.2.1 Exclusions

5.3 Securities advertisements

5.3.1 Securities advertisements defined
5.3.2 The authorized person’s role
5.3.3 Exemptions from the need for issue or approval
5.3.4 Territorial scope of securities advertisements

Review Questions

64
Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

65
INTRODUCTION
The Securities Business Regulations have been produced by the Board of the Capital Market
Authority.

5.1 CARRYING ON SECURITIES BUSINESS

5.1.1 SECURITIES BUSINESS
Learning Objective 5.1.1 – Understand the five Securities activities that constitute Securities
Business (Part 2, Articles 2 & 3)

Securities business is defined as any of the following activities being performed for business
purposes:

 Dealing: this could be as principal or agent and includes selling, buying or underwriting
securities;
 Arranging: this includes persons introducing parties in relation to securities business, advising
on corporate finance business or otherwise acting to bring about deals in securities;
 Managing: this is persons managing the securities that belong to others, but only in
circumstances involving the exercise of discretion;
 Advising: persons advising others on the merits of particular securities, or on whether to
exercise any right or deal conferred by the securities;
 Custody: this is safeguarding the assets of others that include securities and providing the
necessary administration.

5.1.2 SECURITIES BUSINESS IN THE KINGDOM

Learning Objective 5.1.2 – Understand the criteria present if a person is to be regarded as
carrying on Securities Business in the Kingdom of Saudi Arabia (Part 2, Article 4)

A person is regarded as carrying on securities business in the Kingdom of Saudi Arabia if he

engages in securities activities from a permanent place of business in the Kingdom. This is
presumed in the following two situations:

1 - the person engages in the relevant activity, or securities business generally, in the Kingdom;
or
2 - the person engages in the relevant activity with, or for, a person in the Kingdom

5.1.3 PERSONS WHO MAY CARRY ON SECURITIES BUSINESS IN THE KINGDOM

Learning Objective 5.1.3 – Understand the categories of persons who may carry on Securities
Business in the Kingdom of Saudi Arabia (Part 2, Article 5 annex 1)

The only persons permitted to carry on securities business in the Kingdom are those that are
either authorized by the Authority (commonly referred to as authorized persons) or exempt
persons.

66
An exempt person is one of the following:
1- The Government of the Kingdom.
2- The Saudi Arabian Monetary Authority (SAMA).
3- The Saudi Arabian Stock Exchange and any other Exchange approved by the Authority.
4- The Depositary Center.
5- Any supranational agency recognized by the Capital Markets Authority.

Additionally, an insolvency practitioner is exempt in relation to activities undertaken as an

insolvency practitioner, an insurance company is exempt in relation to insurance activities
regulated by SAMA, and the Capital Market Authority has the ability to exempt others.

5.2 EXCLUSIONS FROM AUTHORIZATION

5.2.1 EXCLUSIONS
Learning Objective 5.2.1 – Know the Securities activities that do not require authorization by the
Authority (Part 2, Articles 7 to 10)

Because of the wide-ranging definition of securities activities, the Securities Business

Regulations detail certain instances where persons are able to undertake activities without
requiring authorization or exemption. The following are examples that are excluded from the
need for authorization:

 Intra group dealings. Deals executed as principal are excluded if they are undertaken by
members of the same group of companies, or participants in a joint enterprise (where the
transactions are for the purpose of the joint enterprise). Similarly, if arranging, managing,
advising or custody services are provided by one member of a group for other members of the
group, or participants in a joint enterprise, they are excluded.

 In the course of non-securities business. Securities activities are excluded if they are incidental
services. They must be carried on in the course of professions or businesses that do not
otherwise consist of carrying on securities business, must reasonably be regarded as a
necessary part of other services provided in the course of that profession or business, and must
not be remunerated separately from the other services. The activities of law firms and
accountancy firms registered in the Kingdom is presumed to fall within this exclusion, as long
as the activities are provided in the ordinary course of business of the firm, and the firm does
not hold itself out as carrying on securities business.

 Sale of goods and supply of services. A securities activity between a supplier and a customer is
excluded if it is carried on for the purposes of, and is reasonably necessary for or ancillary to,
the sale or supply of goods and services. The supplier must be a person whose main business is
to sell goods or supply services and not carry on securities business. The customer must be a
person that is not an individual, to whom the supplier sells the goods or supplies the services.

 There are further exclusions for securities activities carried out by executors, in the course of

67
 business as executors and not separately remunerated, and for activities in connection with the
sale of 50% or more of a non-listed company's voting shares.

 Particular securities activities are excluded in certain circumstances. For example, there are
exclusions for dealing as principal in non-contractually based securities, arranging by a person
of the issuance of its own shares and advice in a newspaper where the principal purpose is
neither to advice nor to induce persons to deal.

5.3 SECURITIES ADVERTISEMENTS

5.3.1 SECURITIES ADVERTISEMENTS DEFINED
Learning Objective 5.3.1 – Understand the criteria that must be present for a communication to
be regarded as a Securities Advertisement (Part 3, Article 16)

A securities advertisement is any form of verbal, electronic, broadcast or written communication

made in the course of business for the purpose of inviting or inducing a person to engage in
securities activity. Making or communicating a securities advertisement includes causing a
securities advertisement to be made or communicated, except when acting as a mere conduit for
information with no editorial control over its content.

5.3.2 THE AUTHORIZED PERSON’S ROLE

Learning Objective 5.3.2 – Know the Authorized Person's role in the making or communicating
of Securities Advertisements (Part 3, Article 17)

Securities advertisements must not be made or communicated to any person in the Kingdom
unless the person making the advertisement is an authorized person, or an authorized person has
approved the contents of the advertisement.

5.3.3 EXEMPTIONS
Learning Objective 5.3.3 – Know the exemptions from the Regulation of Securities
Advertisements (Part 3, Article 20)

Securities advertisements are excluded from the requirement to be issued or approved by an

authorized person in the following circumstances:

The advertisement:
 Relates to excluded securities business;
 Is made to an authorized person, or exempt person, by a person seeking to obtain information
about, or to receive, securities business services;
 Is made by an exempt person, relating to that person's exempt activities;
 Is directed only at authorized persons, exempt persons or institutions;
 Is made by a member of a group to another member of the same group;
 Is made by a participant in a joint enterprise to another participant for a purpose relating to the
joint enterprise;

68
 Is made by a journalist acting in that capacity;
 Is made by a person acting in the course of a business that involves placing or distributing
marketing materials or communications;
 Is required to be made under the law of the Kingdom, including the implementing regulations;
 Is directed at persons who own, or are entitled to obtain, securities issued by the person
making the advertisement, or creditors of that person.

5.3.4 TERRITORIAL SCOPE OF SECURITIES ADVERTISEMENTS

Learning Objective 5.3.4 – Know the territorial scope of a Securities Advertisement (Part 3,
Article 19)

Securities advertisements are made or communicated to a person in the Kingdom, if it is available

to persons in the Kingdom, including advertisements made via the internet.

Securities advertisements are not made or communicated to a person in the Kingdom if they are
directed only at persons outside the Kingdom and are, therefore, not subject to the Saudi
regulations

69
 5 Review Questions: Securities Business
Regulations

1. The Securities Business Regulations define five specific activities as securities business.
These activities are (1) dealing in securities as principal and agents, (2) managing
securities, (3) providing custodian services in securities, (4) advising clients on
securities including shareholders rights and (5) ______________.
(a) Settlement in securities transaction.
(b) Arranging corporate finance deals.
(c) Lending of securities.
(d) Providing loans for margin transactions.

2. Which of the following is an ‘exempt person’ as prescribed by the Securities Business

Regulations?
I) The government of the Kingdom of Saudi Arabia.
II) The Saudi Arabian Monetary Agency.
III) The Saudi Stock Exchange and any other Exchange approved by the Capital
Market Authority.
IV) The Depositary Center.

(a) I only.
(b) I, II and IV only.
(c) II and IV only.
(d) I, I, III and IV.

3. A securities advertisement is any form of verbal, electronic, broadcast or written

communication made in the course of business for the purpose of
_______________________.
(a) Inviting a person to use the services of the Authority.
(b) Inviting a person to engage in securities activities.
(c) Promoting the services of the Exchange.
(d) Inviting a person to use the services of the authorized person.

4. Non – exempt persons who want to carry on securities business in the

kingdom must be authorized by the Capital Market Authority, except when
it falls in the exclusion list. Which of the following is Not in the exclusion list?
a. Intra group securities dealings
b. Securities activities that are incidental to the underwriting services
c. Securities activities that are incidental to non – securities businesses
d. Securities activities between a supplier and a customer that are necessary to the
sale or supply of goods and services

70
6 Authorized Persons Regulations
6.1 The principles
6.1.1 The eleven principles

6.2 Authorization
6.2.1 Requirements for authorization
6.2.2 Fit and proper criteria
6.2.3 Record keeping requirements

6.3 Registered persons

6.3.1 Registrable functions

6.4 Conduct of business

6.4.1 Gifts and inducements
6.4.2 Special commission arrangements
6.4.3 Confidential duty
6.4.4 Chinese walls

6.5 Accepting clients

6.5.1 Client classification

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6.5.2 Anti – money laundering law
6.5.3 Terms of business
6.5.4 Know your customer requirements

6.6 Client relations

6.6.1 Fiduciary duties
6.6.2 Conflicts of interests
6.6.3 Dealings that involve risk
6.6.4 Suitability
6.6.5 Lending money to customers
6.6.6 Margin

6.7 Reporting to clients

6.7.1 Contract notes
6.7.2 Periodic valuations
6.7.3 Transaction record keeping requirements
6.7.4 Employees’’ personal dealings
6.7.5 Telephone communications

Review Questions

72
Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

73
6.1 THE PRINCIPLES
6.1.1 THE ELEVEN PRINCIPLES
Learning Objective 6.1.1 – Know the Principles that provide a general statement of the
fundamental obligations of Authorized Persons

The Authorized Persons Regulations issued by the Capital Market Authority outline principles
that provide a general statement of the fundamental obligations of authorized persons. The eleven
principles are intended to from a universal statement of the standards of conduct expected of
authorized persons. The principles are as follows:

1 - Integrity. Authorized persons are expected to conduct their business with integrity.
2 - Skill, care and diligence. Authorized persons are expected to conduct their business with due
skill, care and diligence.
3 - Efficiency of management and control. Authorized persons are expected to take reasonable
care to organize their affairs responsibly and effectively, with adequate risk management
policies and systems.
4 - Financial prudence. Authorized persons must maintain adequate financial resources in
accordance with the rules issued by the Capital Market Authority.
5 - Proper market conduct. Authorized persons should observe proper standards of market
conduct.
6 - Protection of clients' assets. Authorized persons must arrange for adequate protection of its
clients' assets when it is responsible for them.
7 - Co-operation with regulators. This includes the disclosure of any material event or change in
the authorized person's business operations or organization to the Capital Markets Authority.
8 - Communication with clients. Authorized persons must pay due regard to the information
needs of the clients, and communicate information to them in a way that is clear, fair and not
misleading.
9 - Paying proper regard to customers' interests. This expects the customers to be treated fairly;
paying due regard to their interests.
10 - No conflicts of interest. Authorized persons should manage conflicts of interest fairly, both
between itself and its customers and between a customer and another client.
11 - Customers' suitability. Authorized persons should take reasonable care to ensure the
suitability of its advice and discretionary decisions for any customer to whom it provides
those services.

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6.2 AUTHORIZATION
6.2.1 REQUIREMENTS FOR AUTHORIZATION
Learning Objective 6.2.1 – Know the requirements that an applicant must fulfill when applying
for an authorization to conduct investment business

An applicant for authorization is the person that is applying for authorization to carry on
securities business.
An application for authorization may be submitted by the founders or controlling shareholders of
an applicant if the applicant is not yet established.

Each application for authorization must be made on the application form prescribed by the
Authority and be accompanied by certain required information and documents.

Each applicant must demonstrate to the Authority that:

1 - it is fit and proper to carry on securities business of the kind and scale for which it seeks
authorization in accordance with the rules prescribed by the Authority;
2 - it has adequate resources for the kind of securities business that it proposes to carry on in
accordance with the rules prescribed by the Authority;
3 - it has managerial expertise, financial systems, risk management policies and systems,
technological resources and operational procedures and systems that are sufficient to fulfill its
business and regulatory obligations and to conduct the kind of securities business that it
proposes to carry on; and
4 - its directors, officers, employees and agents who will be involved in the applicant's securities
business have the necessary qualifications, skills, experience and integrity to carry on the
kind of securities business that it proposes to carry on.

In order to engage in dealing, custody and managing business, an applicant must be established in
the Kingdom and must be one of the following:
 a subsidiary of a local bank;
 a joint stock company;
 a subsidiary of a Saudi joint stock company that is engaged in financial services business;
 a subsidiary of a foreign financial institution that is licensed under the
 Banking Control Law.

The applicant must also have its management and head office in the Kingdom. The paid up
capital of the applicant must not be less than the following:
1 - dealing and custody :SR 50 million;
2 - managing: SR 20 million for managing investment fund and client porfolios; and SR 5
million for managing private non-real-estate investment funds and sophisticated investor
portfolios;
3 - arranging :SR 2 million; and
4 - advising: SR 400,000

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If the applicant has close links with another person, the Authority must be satisfied with the
integrity, regulatory status, business record and financial soundness of any such person, and that
such close links will not impair the effective supervision of the applicant, or its operations and
compliance with these Regulations.

Finally, the applicant for authorization must pay such fees as may be prescribed by the Authority.

6.2.2 FIT AND PROPER CRITERIA

Learning Objective 6.2.2 – Know the criteria against which an Authorized Person's employees,
officers and agents will be assessed in determining whether the Authorized Person is “Fit and
Proper” to carry out the Securities Business for which it is authorized (Part 3, Article 9)

After gaining authorization from the Authority, authorized persons must continue to be fit and
proper to carry out the securities business for which they are authorized. This is required for the
firms to maintain their authorization.

The skills, experience, competence and integrity of an authorized person's employees, officers
and agents are an important factor in assessing whether the firm is fit and proper. Such skills,
experience, competence and integrity are assessed against the following criteria:

1 - Possession of adequate qualifications and professional experience to carry out their

responsibilities, including appropriate technical knowledge and skills.
2 - Having the probity and soundness of judgment commensurate with their positions.
3 - Fulfilling their responsibilities with diligence and to protect customers' interests in
accordance with the Authority’s implementing regulations.
4 - Not having committed an offence involving fraud or dishonesty.
5 - Not having contravened or broken any laws or regulations governing securities business or
aimed at protecting investors.

6.2.3 RECORD KEEPING REQUIREMENTS

Learning Objective 6.2.3 – Know the record keeping requirements applicable to an Authorized
Person (Part 3, Article 16)

An authorized person must record and retain sufficient information about its securities business to
demonstrate compliance with the Authorized Persons Regulations, and the records must be
retained for a period of ten years, unless the Authority specifies a different period

The records may be kept in any form, but they must be capable of reproduction in hard printed
form. The Capital Market Authority may inspect the records directly, or through a person
appointed for that purpose.

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When a client (or former client) requests records kept during the regulatory record-keeping
period, the authorized person must make the following available within a reasonable period:

1 - Any written material or records that relate to that client and which the authorized person has
sent, or is required to send, to that client under the Authorized Persons Regulations.
2 - Copies of any correspondence received from, or sent to, that client relating to securities
business.

6.3 REGISTERED PERSONS

6.3.1 REGISTRABLE FUNCTIONS
Learning Objective 6.3.1 – Know the Registerable Functions that shall be performed by
Registered Persons (Part 4 Article 19)

The Authority has prescribed certain key positions in authorized firms that need to be filled by
registered persons. As a result these positions are known as register able functions. The following
functions are register able:

 CEO or :Managing Director

 Finance Manager.
 Directors or partners.
 Senior Officers or Managers.
 Compliance Officer
 Money Laundering Reporting Officer
 Client Functions, including sales representatives, investment advisors, portfolio managers and
corporate finance professionals.

This does not apply to authorized person whose licensed business activity is limited to managing
non-real estate investment funds or managing the portfolios of sophisticated investors, arranging
or advising, as such an AP may outsource the function of CFO, compliance and AMLRO.

6.4 CONDUCT OF BUSINESS

6.4.1 GIFTS AND INDUCEMENTS
Learning Objective 6.4.1 – Understand the limitations on the giving and receipt of gifts or
inducements (Part 5, Article 27)

The authorized persons must not induce a client to engage in any transaction by offering or giving
gifts or inducements. Similarly, authorized persons must not accept gifts or inducements if doing
so would conflict to a material extent with any duty that it owes to a client.

The regulations regard gifts or inducements given or received by an affiliate of an authorized

person, or by a third party at the direction of an authorized person, as being given or received by
the authorized person itself for the purpose of this regulation.

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Due to the conflicts it would potentially create, the regulations also prevent an authorized person
from participating (or offering to participate) in any losses made by a client.

6.4.2 SPECIAL COMMISSION ARRANGEMENTS

Learning Objective 6.4.2 – Understand the circumstances in which an Authorized Person may
enter into a special commission arrangement (Part 5, Article 28)

A special commission arrangement is an arrangement where an authorized person receives goods

or services in addition to trade execution services from an intermediary in return for the
commission paid on transactions executed through that intermediary.

Such special commission arrangements can only be entered into by an authorized person if the
following conditions are met:

1 - The intermediary provides best execution for the authorized person.

2 - The goods or services received by the authorized person would reasonably be regarded as
being for the benefit of the authorized person's clients.
3 - The authorized person has disclosed in its terms of business with its clients that it may
receive special commission.
4 - The amount of any fees or commission paid to the provider of the goods or services is
reasonable in the circumstances.

6.4.3 CONFIDENTIALITY DUTY

Learning Objective 6.4.3 – Understand the exceptions to the Authorized Person's duty of
confidentiality in respect of client information (Part 5, Article 29)

Normally an authorized person is required to keep information obtained from clients confidential.
However, there are four circumstances where disclosure can be made:
1 - where the client has consented to its disclosure;
2 - where the disclosure is required by the Capital Market Law, its implementing regulations or
the applicable laws of the Kingdom;
3 - where disclosure is reasonably necessary to perform a particular service for the client;
4 - where the information is no longer confidential.

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6.4.4 CHINESE WALLS
Learning Objective 6.4.4 – Understand the characteristics and uses of Chinese Wall
Arrangements (Part 5, Article 30)

Inevitably, certain departments that may exist within an authorized firm, such as corporate
finance, will obtain confidential or inside information in the course of their business. Chinese
wall arrangements are written policies and procedures that are designed to ensure that such
information is known only to employees authorized to receive it and not to other parts of the firm,
such as the dealers and investment advisors

The Authorized Persons Regulations require firms that provide corporate finance services, and
also provide other services such as dealing, advising or managing securities, to have Chinese wall
arrangements.

Furthermore the Authorized Persons Regulations state that an authorized person is not violating
the market conduct regulations if it deals or advises in a security whilst another department is in
possession of inside information, as long as the following conditions are met:

1 - The authorized person has established Chinese wall arrangements, appropriate to the nature
and size of its securities business.
2 - The authorized person has effectively implemented and maintained its Chinese wall
arrangements.
3 - None of the individuals involved in the dealing or advising activity has knowledge of the
inside information or has received advice on the dealing or advising activity from an
individual who has knowledge of the inside information.

6.5 ACCEPTING CLIENTS

6.5.1 CLIENT CLASSIFICATION
Learning Objective 6.1.1 – Understand the three different types of client

Before conducting securities business with or for any client, an authorized person must classify the
client as one of the following:
 a customer;
 an execution only customer; or
 a counterparty.

An execution only customer is where the firm is restricted to dealing as agent, in accordance with
the instructions received from the customer, and the firm provides no advice. The authorized
person must not classify a client in more than one of the three categories and must record the
classification, including sufficient information, to support that classification.

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6.5.2 ANTI – MONEY LAUNDERING AND COUNTER-TERRORISM FINANCING LAW
Learning Objective 6.1.2 – Know that an Authorized Person must comply with all obligations
under the Anti-Money Laundering Law and associated rules and regulations (Part 5, Article 37)

Before conducting securities business with or for any client, an authorized person must ensure
that it complies with all obligations under the Anti-Money Laundering Law and the rules and
regulations on anti-money laundering and terrorism financing as in force in the Kingdom.

6.5.3 TERMS OF BUSINESS

Learning Objective 6.1.3 – Know the requirement that an Authorized Person must provide a
client with its terms of business; the basic purpose of so doing and its record keeping
requirements (Part 5, Article 38)

Before an authorized person conducts any securities business with or for a client, the firm must
provide the client with terms of business. The terms of business set out, in adequate detail, the
basis on which securities business is to be conducted with or for the client.

The terms of business take effect once the client has returned a properly executed copy of the
terms of business. The required contents of the terms of business are laid down in an annex to the
Authorized Persons Regulations. The authorized person is required to retain a record of the terms
of business it provides to the client, and any subsequent amendments.

6.5.4 KNOW YOUR CUSTOMER REQUIREMENTS

Learning Objective 6.1.4 – Know the requirement to Know Your Customer and basic details of
the information that should be retained (Part 5, Article 39)

Before an authorized person deals, advises or manages for a customer, it must obtain information
from the customer. This information will cover the customer's financial situation, investment
experience and investment objectives relevant to the services to be provided. Certain minimum
information, laid down in an appendix to the regulations, must be obtained as a precondition to
providing services to the customer. If the customer refuses to provide the information, the
authorized person may not deal, advice or manage for that customer.

Because the customer's circumstances can change, the authorized person must request an update
of such information from the customer at least once every three years. The authorized person
must also retain a record of all the information obtained from the customer under the know your
customer regulations

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6.6 CLIENT RELATIONS
6.6.1 FIDUCIARY DUTIES
Learning Objective 6.6.1 – Know basic details of the fiduciary duties that an Authorized Person
owes to its customers (Part 5, Article 40 & Annex 5.4)

An authorized person owes the following statutory fiduciary duties to its customers:

 Loyalty. An authorized person must act in all cases in good faith and in the interests of the
customer.
 Conflict of interest. An authorized person must follow principle 10 managing conflicts of
interest fairly both between itself and its customers and between a customer and another client
 No secret profits. An authorized person must not use the customer's property, information or
opportunities for its own or anyone else's benefit unless the authorized person makes full
disclosure of such usage to the customer, and obtains his consent
 Care, skill and diligence. An authorized person owes the customer a duty to exercise the care,
skill and diligence that would be exercised in the same circumstances by another firm having
the level of skill and experience reasonably expected.

6.6.2 CONFLICTS OF INTERESTS

Learning Objective 6.6.2 – Understand an Authorized Person's responsibilities regarding any
conflict of interest between itself and its customers (Part 5, Article 41)

In addition to the statutory fiduciary duties outlined above, the Authorized Persons Regulations
provide further detail on conflicts of interest.

An authorized person must ensure that it safeguards the interests of its customers at all times, and
that no conflict of interest between the firm and the customer affects the transactions or services
that the authorized firm carries out for its customer.

Where an authorized person has an actual or potential conflict of interest in relation to a customer
transaction, it shall disclose the conflict to the customer in writing.

An authorized person is not required to disclose a conflict of interest if this information would
constitute the provision of inside information. In such instances, the authorized person shall take
reasonable steps to ensure fair treatment for the customer.

If there was a conflict of interest between an authorized person and the customer in any
transaction, the authorized person must pay to the customer the value of any loss incurred by the
customer as a result of the conflict, unless:

1 - the authorized person has disclosed the conflict of interest to the customer; and
2 - the customer has agreed in writing that the authorized person can proceed notwithstanding the
conflict.

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6.6.3 UNDERSTANDING RISK
Learning Objective 6.6.3 – Understand the restrictions placed on an Authorized Person's
dealings with its customers when undertaking activities that involve risk (Part 5, Article 42)

An authorized person must not deal, advise or manage for a customer, or take collateral for its
own account from a customer, unless it has taken reasonable steps to enable the customer to
understand the nature of the risks involved in the type of transaction to be undertaken.

Furthermore, when dealing, advising or managing for a customer there are particular
requirements regarding risk disclosures for two groups of securities:

1 - for derivatives, contingent liability securities or non-retail investment funds the customer
must be informed of the nature and extent of the risks involved in such securities; and
2 - for illiquid or speculative securities, the customer must be informed of the nature and extent
of the risks involved in such securities, including any difficulties in determining their value.

6.6.4 SUITABILITY
Learning Objective 6.6.4 – Understand the Regulations regarding the Suitability of advice or a
transaction for a customer (Part 5, Article 43)

An authorized person must not deal, advise or manage for a customer or take collateral for its
own account from a customer, unless the advice or transaction is suitable for that customer:. The
suitability should have regard to the facts disclosed by that customer and other relevant facts
about the customer of which the authorized person is aware, or reasonably should be aware.

In assessing suitability, the authorized person should have regard to:

1 - The customer's knowledge and understanding of the relevant securities and markets, and the
risks involved
2 - The customer's financial standing, including an assessment of his net worth or the value of his
portfolio based on the information disclosed by that customer.
3 - The length of time that the customer has been active in the relevant markets, the frequency of
business and the extent to which he relies on the advice of the authorized person.
4 - The size and nature of transactions that have been undertaken for the customer in the relevant
markets.
5 - The customer's investment objectives

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6.6.5 LENDING MONEY TO CUSTOMERS
Learning Objective 6.6.5 – Understand the circumstances under which an Authorized Person
may lend money or extend credit to a customer (Part 5, Article 44)

An authorized person is not permitted to lend money or extend credit to a customer in relation to
securities business, nor should an authorized person arrange for any other person to lend money,
except under the following instances, where an authorized person has:
 made and recorded an assessment of the customer's financial standing, based on information
provided by the customer;
 satisfied itself that the amount and arrangements for the loan or credit are suitable for the
customer;
 the customer has given his prior written consent to the lending or credit facility, specifying the
maximum amount of the loan or credit together with details of any charges to be levied.

The restrictions on lending do not apply where an authorized person settles a transaction in the
event of a default or late payment by the customer, or the firm pays an amount to cover a margin
call for a customer for a period no longer than five days.

6.6.6 MARGIN
Learning Objective 6.6.6 – Understand the circumstances and conditions under which an
Authorized Person may effect a margined transaction or the granting of a loan or credit to cover
margin payments (Part 5, Article 45)

Authorized persons are not permitted to effect a margined transaction with or for a client unless
the client has entered into terms of business specifying the following:

1 - the circumstances under which the client may be required to provide margin;
2 - particulars of the form in which the margin may be provided;
3 - particulars of the steps that the authorized person can take if the client fails to provide the
required margin, including the communication methods by which the margin call will be
made on the client;
4 - that failure by the client to meet a margin call may lead to the authorized person closing out
the client's position, after the time limit specified by the authorized person. The authorized
person is entitled to close out the position in any event after a period of five days from such a
failure;
5 - any circumstances, other than failure to provide margin, which may lead to the client's
position being closed without prior reference to him.

Loans or credit can only be extended to clients for margin purposes if a credit assessment has
been performed (by someone independent of the trading or marketing functions) and the client
has given prior written consent

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Furthermore, the authorized person must require a minimum of 25% of the value of the
transaction prior to effecting that transaction, take reasonable steps to satisfy itself that the client
is aware of the risks of margined transactions and monitor the margin daily, ensuring it is
maintained at a minimum level of 25% of the current value of the position.

The Authority reserves the right to prescribe a higher rate of margin in any security or group of
securities. Such higher rates must be required from the clients by the authorized persons.
Similarly, the Capital Market Authority is able to prohibit margined transactions in relation to any
security or group of securities as it sees fit.

Margin payable by the client regarding margined transactions on a regulated exchange must be at
least the amount or value of the margin requirements of that exchange, market or clearing house.
Margin must be in the form of cash, fully-paid securities positions or other acceptable collateral.

The authorized person whose licensed business activity is limited to the management of private
non-real estate funds or the management of sophisticated investors' portfolios may not effect
margined transaction with a client, lending money or provide credit facilities to a clients in
respect to securities business.

6.7 REPORTING TO CLIENTS

6.7.1 CONTRACT NOTES
Learning Objective 6.7.1 – Know the requirement that an Authorized Person must send a
contract note when it has effected a sale or purchase of a Security for a customer (Part 5, Article
47)

Authorized persons effecting a sale or purchase of a security with or for a client must send that
client a contract note forthwith. The contract note has to include certain information detailed in an
annex to the Authorized Persons Regulations.

A contract note is not required to be sent where the authorized person is acting as manager, and
the client has confirmed in writing that he will not require such contract notes to be provided in
writing.

6.7.2 PERIODIC VALUATIONS

Learning Objective 6.7.2 – Know the requirement that an Authorized Person who acts as
manager for a client must send periodic valuations to that client (Part 5, Article 48)

Authorized persons acting as manager for a client must send a valuation report at least every three
months in respect of securities or securities-related cash balances contained in the client's
account. Valuation reports must provide certain minimum information detailed in an annex to the
Authorized Persons Regulations.

This does not apply to the authorized persons whose licensed activity is limited to the
management of private non-real estate funds ,management of sophisticated investors' portfolios,

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arranging or advising.

6.7.3 TRANSACTION RECORD KEEPING REQUIREMENTS

Learning Objective 6.7.3 – Understand the record keeping requirements in respect of
transactions effected by an Authorized Person for its clients and its clients' accounts (Part 5,
Article 49)

An authorized person must keep and maintain proper records of each transaction it effects. Such
records must be current at all times and be sufficient to demonstrate compliance with the
Authorized Persons Regulations.

For their client accounts, such records are required to:

1 - accurately record the assets and the liabilities of each client at all times, and the assets and
liabilities of all clients collectively;
2 - contain such information as is necessary to enable the authorized person to prepare a
statement of each client's assets and liabilities, and details of transactions effected for the
client;
3 - identify all client money and client assets that the authorized person, or its custodian, are
responsible for.

The records of the authorized person must contain the following:

1. details of all orders in a security entered by a client;

2. details of all purchases and sales of a security made by the authorized person for a client, or by
the authorized person for its own account;
3. records of all income and expenses for each client, explaining their nature;
4. details of all receipts and payments of client money and client assets;
5. records of the cash and securities held in each client account;
6. records of client money and client assets.

6.7.4 EMPLOYEES’ PERSONAL DEALINGS

Learning Objective 6.7.4 – Understand the Employees' Personal Dealings as they affect the
employee and the Authorized Person (Part 5, Article 50)

The Authorized Persons Regulations place restrictions on employees of an authorized person

dealing for their own account. Such employees must not knowingly:
1 - be a party to any transaction in a security where a client of the authorized person is a party;
2 - establish a trading account at another authorized person, except where the employee's
authorized person does not offer the same service.
Additionally, an employee of an authorized person must disclose to the compliance officer all
transactions entered into via another authorized person.
The compliance officer must establish procedures to monitor employees' personal dealings in
securities, to ensure compliance with the Capital Market Law and the implementing regulations.

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The procedures are required to be consistent with certain provisions laid down in an annex to the
Authorized Persons Regulations (annex 5-7 Personal Account Dealing).

6.7.5 TELEPHONE COMMUNICATIONS

Learning Objective 6.7.5 – Know an Authorized Person's obligations if it wishes to make or
accept telephone communications to or from its clients in relation to Securities Business (Part 5,
Article 51)

If an authorized person wishes to accept telephone instructions from clients in relation to

securities business, it must record the telephone communications. It must also disclose to its
clients and prospective clients that telephone communications will be recorded.

The recordings of a telephone communication must be retained for a period of three years from
the date of the communication. If the telephone communication relates to a dispute with a client,
or a regulatory enquiry, the recording must be retained until the dispute is fully resolved or the
enquiry is complete.

This does not apply to the authorized persons whose licensed activity is restricted the
management of private non-real estate funds ,management of sophisticated investors' portfolios,
arranging or advising.

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 6 Review Questions: Authorized Persons
Regulations

1 - The following are some of the principles outlined by the Authorized Persons
Regulations except:
(a) Conducting business activities with integrity.
(b) Compliance with clients’ requirements.
(c) Conducting business with skill, care and diligence.
(d) Observing proper market conduct.

2 - One of the requirements imposed by the authorized persons regulations for an

authorized person to maintain authorization to carry on securities business is that it
has to fulfill the ‘fit and proper’ criteria that include the following:
I) Possession of adequate qualifications and professional experience.
II) Fulfilling responsibilities with diligence to protect customers' interests.
III) Not having committed an offence involving fraud or dishonesty.
IV) Having the probity and soundness of judgment.

(a) I, II and III only

(b) I, II and IV only
(c) I, III and IV only
(d) I, II, III and IV.

3 - The following functions are registrable , EXCEPT:

(a) CFO
(b) AMLRO
(c) HR Specialist.
(d) CEO

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7 Investment Funds and Real Estate
Investment Funds Regulations
Introduction

7.1 Offer of investment funds units

7.1.1 Private placement requirements
7.1.2 Public offer requirements

7.2 Procedures and powers of the authority in relation to an application (mutual funds)

7.3 Reporting to unit holders

7.4 Pricing, valuation and redemption

7.5 Independence of the Custodian

7.6 Deferring Redemptions

7.7 Authorization requirements of real estate investment funds

7.8 Procedures and powers of the authority in relation to an application (real estate
investment funds)

7.9 Valuation of real estate funds’ assets

7.10 Presenting reports to unit holders

Review Questions

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Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

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INTRODUCTION
This chapter covers the Investment Funds Regulations and Real Estate Investment Funds
Regulations that aim at regulating:

a) The establishment, offering and management of investment funds and associated activities in
the Kingdom.
b) The establishment, offering, and management of real-estate investment Funds, protection of
unit holders rights and the application of disclosure and transparency rules.

7.1 OFFER OF INVESTMENT FUND UNITS

Units in investment funds may be offered via a public offer or a private placement. An offering
of units in an investment fund is a public offer if it does not fulfill the conditions of a private
placement specified below.

7.1.1 PRIVATE PLACEMENT REQUIREMENTS

Learning Objective 7.1.1 – Understand the process of issuing units of investments funds by way
of private placement

1- Private funds (Part 5, Articles 73, 74 & 75-a)

2- Foreign funds (Part 6, Articles 93, 94 & 95-a)

PRIVATE FUNDS
The following rules apply to all investments units issued by way of private placement:

Article 73: Submitting a Notice to the Authority For the Establishment of a Private
Fund, and Offering of Units in a Private Fund

a. A notification to the Authority to establish, and offer units in, a private fund must
be submitted by an authorised person that is authorised to carry out the activity of
managing. Any such notice must be in the form specified in Annex (7) of these
Regulations. Requirements of a private placement referred to in paragraph (a) of
Article (75) of these Regulations must be met.

b. Units in a private fund may only be offered in the Kingdom by way of private
placement in accordance with ‎Article (74) of these Regulations.

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Article 74: Private Placement of a Private Fund and Eligibility of Investors

a. An offer of units in a private fund is a private placement where the offerees are
sophisticated investors or the minimum amount payable per offeree is not less
than Saudi Riyals one million or an equivalent amount.

b. for the purpose of this Article, sophisticated investors shall mean any of the
followings:

1) Authorised persons acting for their own account;

2) Clients of a person authorised by the Authority to conduct managing

activities provided that:

a. The offer is made through authorised person and all relevant

communications are made through the authorised person; and

b. The authorised person has been appointed as an investment manager on

terms which enable it to make decisions concerning the acceptance of the
private offers of securities on the client’s behalf without reference to the
client;

3) The government of the Kingdom, any supranational authority recognised

by the Authority, the Exchange and any other stock exchange recognised
by the Authority or the Depositary Center;

4) Institutions acting for their own account;

5) Professional investors;

6) Registered persons with an authorised person if the offer is made through

the respective authorised person itself; or

7) Any other persons prescribed by the Authority.

c. The Authority may, in circumstances other than those described in paragraph (a)
of this Article and upon application of an authorised person seeking to make an
offer of units in a private fund, determine that such an offer shall be treated as a
private placement subject to compliance with such limitation as the Authority
may impose.

d. If the units are offered in a private real estate fund, the fund must be a close-ended
investment fund

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Article 75: Private Placement Requirements

a. An authorised person may not offer units in a private fund unless such an
authorised person:

1) notifies the Authority in writing in accordance with the format set out in
Annex 7 of these Regulations at least (15) days prior to the proposed date
of an offer;

2) submits to the Authority a declaration in accordance with the terms set out
in Annex 8 of these Regulations;

3) submits to the Authority copies of the fund's terms and conditions and any
offering documents to be used in advertising the offer;

4) provide details of the organizational structure of the Fund Manager,

including a description of the investment decision-making process of fund
manager or sub-fund manager, and the name and function of any
registered person in that decision-making process to the Authority;

5) provide a compliance monitoring program for the relevant investment

fund;

6) pays such registration fees as the Authority may prescribe;

7) any other information that the Authority requires; and

8) provide a copy of the key information in Arabic, in accordance with the

requirements of annex (3) of these Regulations.

PART 6: FOREIGN FUNDS

The following rules apply to foreign investments units:

Article 93: Offer of Units in a Foreign Fund in the Kingdom

a. Units in a foreign fund may not be offered in the Kingdom except in accordance
with this Part.

b. No person may offer units in a foreign fund in the Kingdom unless the offer is
being made through a distributor and the offering of units shall be a private
placement in accordance with the requirements set out in Article (95) of these
Regulations.

c. The distributer referred to in paragraph (a) of this Article, must be an authorised

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 Person authorised to conduct dealing as agent activities.

d. A foreign offered fund manager must be authorised in a jurisdiction that employs

regulatory standards and requirements at least equivalent to those of the Authority.
The Authority shall have the discretion to assess whether the jurisdiction has
regulatory standards and requirements at least equivalent to those of the Authority

Article 94: Private Placement of a Foreign Fund and Investors Eligibility

a. An offer of units in a foreign fund is a private placement where the offerees are
sophisticated investors, as specified in paragraph (b) of Article (74) of these
Regulations, or the minimum amount payable per offeree is not less than Saudi
Riyals one million or an equivalent amount.

b. The Authority may, in circumstances other than those described in paragraph (a)
of this Article and upon a request from a distributor seeking to make an offer of
units in a foreign fund, determine that such an offer shall be treated as a private
placement subject to compliance with such limitation as the Authority may
impose.

Article 95: Private Placement Requirements of foreign funds

a. No units may be offered in a foreign fund unless the distributor meets the
following:

1) notifies the Authority in writing in accordance with the format set out in
Annex 7 of these Regulations at least (15) days prior to the proposed date
of the offer;

2) submits to the Authority a declaration in accordance with the terms set out
in Annex 9 of these Regulations;

3) submits to the Authority copies of any offering documents to be used in

advertising the offer;

4) submits to the Authority copies of key information in Arabic in

accordance requirement of Annex (3) of these Regulations;

5) conduct a detailed comprehensive review of the foreign fund and its

manager before the distribution of that fund’s units, and provide the
Authority with it upon its request within (5) days from the date of request;

6) pays such registration fees as the Authority may prescribe; and

7) any another information that the Authority requires

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 2.1.7 PUBLIC OFFER REQUIREMENTS

Learning Objective 7.1.2– Understand the public offer of units of investments funds (Part
4,Article 30, Annex4)

Article 30: Application to the Authority for the Establishment of, and Offering of
Units in, a Public Fund

a. Any person seeking to establish, and offer units in, a public fund must submit an
application to the Authority which contains the information specified in Annex 4
of these Regulations. The Applicant must be an authorised person that is
authorised to carry out the activity of managing.

b. The applicant must notify the Authority immediately of any change in the
documentation and information provided to the Authority.

c. The applicant must pay the fees set by the Authority.

CONTENTS OF APPLICATION (ANNEX 4)

This Annex highlights the documents that are required to be included in an application file for
submission to the Capital Market Authority.

The application file must include the following:

a. Form (1) of this annex after it is being filed.

b. Submission Checklist of the provided documents.
c. Draft of the fund's Terms and Conditions (with the fund's terms and conditions
Checklist).
d. Draft Information Memorandum (with the Disclosure Checklist).
e. Draft Key fact sheet.
f. Funds board member photo ID
g. Subscription and Redemption Forms.

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h. A detailed investment decision-making process, highlighting the names of any registered
persons involved
i. A detailed description of risk management policies and procedures for the relevant fund.
j. A declaration by fund manager that all administrative systems to be adopted in relation to
operational aspects of investment funds are available, including compliance monitoring
program of the relevant investment fund.
k. A declaration by the fund manager that all candidates of the fund's board meet the
qualification and requirements contained in these Regulation, and that the definition of
independent fund director in the Glossary of Defined Terms Used in the Regulations and
Rules of the Capital Market Authority applies on that fund's independent directors.
l. Any other supporting documents.
m. Fees.
n. Electronic copies of all documents required under the above paragraphs.

Application form is available for public at the official Capital Market Authority website:
www.cma.org.sa

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2.7 PROCEDURES AND POWERS OF THE AUTHORITY IN

RELATION TO MUTUAL FUNDS APPLICATION

Learning Outcome 7.2 – Understand the steps and procedures the Capital Market is empowered
to take in considering an application to offer units in an investment fund

- Private funds (Part 5, Article 75-b,c,d,e &f)

- Foreign funds (Part 6, Article 95-b,c,d,e &f)

- public funds (Part 4, Article 31)

PROCEDURES AND POWERS OF THE AUTHORITY IN

RELATION TO PRIVATE FUNDS APPLICATION (Article 75-b,c,d,e &f):

Article 75: Private Placement Requirements

In considering an application to offer units in an investment fund, the Capital Market Authority
may:

b. If having received a private placement notification and the relevant information

and documents provided under paragraph (a) of Article 75 the Authority considers
that the proposed offer of units may not be commensurate with the fund managers
ability or may result in a breach of the Capital Market Law or its Implementing
Regulations then it may take the following actions:

1) carry out any enquiries which it considered appropriate including

requiring the concerned person or its representative to appear before the
Authority to answer the questions of the Authority and to explain any
matters that the Authority considers relevant to the private placement
offering; or

2) require the concerned person or others to provide additional information or

to confirm, in such manner as the Authority may specify, that the
information provided is accurate.

c. Where the Authority determines that the private placement may not be
commensurate with the fund managers ability or may result in a breach of the
Capital Market Law or its Implementing Regulations, the Authority may issue a
“notification” to the authorised person stating that the private offer is not to be
made or publish a “notice” prohibiting the offer.

d. Where the Authority has not taken any actions stated in paragraph (c) of this

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 Article, the Authority shall, on the request of the authorised person, issue a notice
stating it has no objection to the establishment and offering of units in the private
fund and enter the name of the private fund in the register of funds.

e. The authorised person must provide the Authority within (10) days of the end of
the initial offer period of the private fund with the results of the offer.

f. Where the offer is not completed by the proposed offer end date (if any) specified
in the private placement notification provided to the Authority in accordance with
sub-paragraph (1) of paragraph (a) of this Article and terms and conditions of the
fund, the authorised person must provide the Authority within (10) days with a
notification in writing signed by the authorised person confirming that the offer
has failed to complete. The authorised person must return to the unitholders their
full subscriptions monies together with any returns generated from investing the
subscriptions monies without any deduction.

PROCEDURES AND POWERS OF THE AUTHORITY IN

RELATION TO FOREIGN FUNDS APPLICATION (Article 95-b,c,d,e &f):

Article 95: Private Placement Requirements of foreign funds

b. If having received a private placement notification and the information and

documents provided under paragraph (a) of this Article and the Authority
considers that the proposed offer of units may not be commensurate with the
distributor's ability or may result in a breach of the Capital Market Law or its
Implementing Regulations then it may take any of following actions:

1) carry out any enquiries which it considered appropriate including

requiring the concerned person or others to appear before the Authority to
answer the questions of the Authority and to explain any matters that the
Authority considers relevant to the private placement offering; or

2) require the concerned person or others to provide additional information or

to confirm that the information provided is accurate, in such manner as the
Authority may specify.

c. Where the Authority determines that the private placement may not be
commensurate with the distributor's ability or may result in a breach of the
Capital Market Law or its Implementing Regulations, the Authority may issue a
“notification” to the authorised person stating that the private offer is not to be
made or publish a “notice” prohibiting the offer.

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d. Where the Authority has not taken any actions stated in paragraph (c) of this
Article, the Authority shall, on the request of the distributor, issue a notice stating
it has no objection to the offering of units in the foreign fund and enter the name
of the foreign fund in the register of funds.

e. The distributor must provide the Authority within (10) days of the end of the
initial offer period of the foreign fund with the results of the offer in such form as
the Authority may prescribe, when applicable.

f. Where the offer is not completed by the proposed offer end date (if any) specified
in the private placement notification provided to the Authority in accordance with
sub-paragraph (1) of paragraph (a) of this Article, terms and conditions of the
fund, and relevant offering documents,, the distributor must provide the
Authority within (10) days with a notification in writing signed by the distributor
confirming that the offer has failed to complete, The distributor must return to the
unitholders their full subscriptions monies together with any returns generated
from investing the subscriptions monies without any deduction

Article 31: Procedures and Power of the Authority Toward the Application

a. The Authority shall take any of the following within a period not exceeding (5)
days from the day of receiving the application for approval to establish a public
fund and to offer units in a public fund as per paragraph (a) of Article (30):

1) it will notify the applicant in writing of a decision to approve the

application;

2) it will notify the applicant in writing of an uncompleted application and to

provide such missing information and documents;

3) if the Authority did not notify the applicant in accordance with sub-
paragraph (1) or sub-paragraph (2) of this paragraph, it would be
considered an implicit notice from the Authority to the applicant of the
completion of the application, and the date of implicit notice is the
expiration of the period specified in this paragraph.

b. if the Authority notifies the applicant of an uncompleted application in

accordance with sub-paragraph (2) of this paragraph, the applicant must provide
such missing information and documentation within a period not exceeding (5)
days from the day of the notice, in failing to comply a decision to refuse the
application will be issued, and the Authority may issue a notice of such decision.

c. Without prejudice to paragraph (d) of this article, if the application was completed
in accordance with sub-paragraph (1) or sub-paragraph (3) of paragraph (a) of this
article, or if the applicant provided any missing information and documents in
accordance with paragraph (b) of this article, The Authority shall take any of the

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 following within a period not exceeding (30) days from the day of the completion
of application:

1) a decision to approve the application, and the Authority will provide the
applicant with a written notice;

2) a decision to approve the application subject to such conditions and

limitations as it considers appropriate by the Authority, and the Authority
will provide the applicant with a written notice; or

3) a decision to refuse the application, and the Authority will provide the
applicant with a written notice with a statement of reasons.

If the Authority have not provided the applicant with a written notice of its
decision within term referred to in accordance with sub-paragraph (1) or sub-
paragraph (2) or sub-paragraph (3) of this paragraph, it would be deemed as a
decision by the Authority of the refusal of the application, for applicants who their
applications were refused request a statement of the reasons for refusal from the
Authority, and the Authority shall provide the applicant with it within a period not
exceeding (5) days from the day following the submission of such request.

d. The Authority may, during the period referred to in paragraph (c) of this article,
request providing any additional information it deems necessary, and such
information needs to be submitted to the Authority within a period not exceeding
(10) days from the date of the request, otherwise the submitted application for
approval to establish a public fund and to offer units in a public fund will be
refused and the Authority may provide the applicant with a written notice.

e. If the applicant made available the additional information requested by the

Authority in accordance with paragraph (d) of this Article within the period
specified in that paragraph, the Authority may take any of the actions set forth in
paragraph (c) of this Article, and within a period not exceeding 10 days of the
receipt of the additional information.

f. The Authority may refuse an application if the Authority believes that the offering
of units in the public fund may not be commensurate with the fund managers
ability or may result in a breach of the Capital Market Law or its Implementing
Regulations.

g. An applicant shall not offer or hold itself out as offering units in a public fund
unless it has received the Authority’s decision in a written notice referred to in
sub-paragraph (1) or (2) of paragraph (c) of this Article.

h. An applicant must commence the offer and issuance of units in a public fund
within (12) months from the date of the Authority’s decision referred to in sub-
paragraph (1) or (2) of paragraph (c) of this Article. If the applicant did not
commence the offer and issuance of units during such period, the Authority’s
approval shall be deemed to be cancelled.

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 2.7 REPORTING TO UNIT HOLDERS

Learning Objective 7.3 – Understand the reporting requirements by the fund manager to
investment fund unit holders

1- public funds (Part 4, Article 71)

2- Private funds (Part 5, Article 89)

3- Foreign funds (Part 6, Article 99-1)

PUBLIC FUNDS

Article 71: Reporting to Unitholders

a. The fund manager must prepare the annual reports that includes (audited
financial statement) short-form annual reports and interim reports in accordance
with the requirements of Annex 5 of these Regulations and must be provided by
the fund manager to unitholders on request and without charge.

b. Annual reports must be made available to the public no later than (70) days from
the end of the period to which the report relates in such locations and by such
means as specified in the terms and conditions and information memorandum as
well as in the fund manager’s website and on the exchange’s website.

c. The interim reports must be prepared and made available to the public within (35)
days from the end of the period to which the report relates in such locations and by
such means as specified in the terms and conditions, the information
memorandum as well as in the fund manager website and on the exchange’s
website.

d. A feeder fund or fund of funds must make its fund reports available within (21)
days after the release of the fund reports of the fund(s) in which it invests.

e. The fund manager shall make available for inspection by unitholders the current
net asset value of the public funds to which it is fund manager free of charge, and
all historical net asset value figures at the registered offices of the fund manager.

f. The fund manager must provide each unitholder with details of the net asset value
of the units owned by it and the record of transactions in fund units made by it
within (15) days of each transaction in units of the public fund by the relevant

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 unitholder.

g. The fund manager must send to the unitholder (including former unitholder
during the year that statement was prepared) an annual statement summarising
their transactions in units in the public fund during the course of a financial year
within (30) days of the end of the financial year, this statement must include the
outline of service fees, expenses, and charges discounted from the unitholder, and
specified in the fund’s terms and conditions and information memorandum, in
addition to details of all the violations of investments limitations described in
these Regulations, the terms and condition, or the information memorandum.

h. The fund manager must, at the end of each quarter, disclose information about the
public fund on its website and on the exchange’s website or by any other means
specified by the Authority. The information must include, at least, the followings
at least:

1) List of issuers which shares constitute the largest ten investments in the fund
portfolio their percentages as it is in the first day of the quarter.

2) The percentage of total fees and charges of the concerned quarter to the
average of the net assets value of the fund.

3) The amount and percentage of profits distributed in the quarter in question if

any.

4) The fund’s manager investments amount and percentage to the net assets
value as it is at the end of the concerned quarter.

5) The amount and percentage of the concerned quarter’s dealing expenses to

the public fund’s average net assets value.

6) Standards and index to measures the risks.

7) Fund’s performance standards and index.

8) Percentage of borrowings to the fund’s net assets value at the end of the
concerned quarter.

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PRIVATE FUNDS

Article 89: Reporting to Unitholders

a. Annual reports (including audited financial statements) and short form annual
reports of the private fund must be prepared in accordance with the requirements set out
Annex 5 of these Regulations and must be provided by the fund manager to
unitholders on request and without charge. Annual reports should be made
available to unitholders no later than (70) calendar days from the end of the period
to which it relates by such means as specified in the fund's terms and conditions.

b. Interim reports for a private real estate funds shall be prepared every (6) months
in accordance with the requirements of Annex 5 of these Regulations, and make
available to unit holders within (35) days from the end of the reporting period, in
the places and the means specified in the terms and conditions of the fund, and the
fund manager must provide Unitholders initial reports of the Fund upon request at
no charge.

FOREIGN FUNDS

Article 99: Distributor’s responsibilities

The distributor of units of a foreign fund must comply with the followings:
1) Sending all reports and documentation issued by the foreign fund manager
to the unitholders in the Kingdom. and ensuring that all unitholders within
the Kingdom in a foreign fund shall be directly entitled to the rights
prescribed in the fund documentation.

2) Conveying all requests and letters of unitholders within the Kingdom to

the foreign fund manager.

3) Notifying the unitholders within the kingdom of termination of

relationship with the foreign open fund manager (90) days of such
termination.

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2.4 PRICING, VALUATION AND REDEMPTION

Learning Objective 7.4 – Understand the pricing, valuation and redemption of open – end
investment funds

1- public funds (Part 4, Articles 60, 66, 67 & 68)

2- Private funds (Part 5, Article 84)

PUBLIC FUNDS

Article 60: Subscriptions and Redemptions

a. Units in a public fund may only be subscribed for or redeemed on a dealing day.
A public fund, which is not a closed-ended fund, shall have not less than two
dealing days during each week. A public fund which is a closed-ended investment
fund shall have such dealing days as the fund manager specifies in the fund's
terms and conditions and in the information memorandum.

b. The deadlines for submission of requests for subscriptions and redemptions for a
public fund must be specified in the public fund’s terms and conditions and
information memorandum.

c. The fund manager shall process requests for subscriptions or redemption at the
price calculated at the valuation point following the request for subscription or
redemption.

d. A fund manager shall be obliged to meet subscription or redemption requests,

subject to any provisions to the contrary in the public fund’s terms and conditions
or in these Regulations, or information memorandum.

e. The fund manager shall pay the unitholder proceeds of redemption no later than
the close of business on the fifth day at the latest of the following the valuation
point at which the price for the redemption was determined.

Article 66: Valuation

a. The fund manager shall be responsible for valuing the assets of the public fund. In
so doing, the fund manager shall conduct a full and fair valuation.

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b. The assets of a public fund must be valued each dealing day at such time as
specified in the terms and conditions and the information memorandum of such
public fund, and for the duration not exceeding one day from the deadline for the
request for subscription or redemption.

c. The fund manager must, in the terms and conditions and the information
memorandum, document the basis of the valuation of units and, where
appropriate, any valuation methodology, and must ensure that the valuation
methodology and procedures are applied in a fair and consistent manner.

d. The fund manager must develop, maintain and state in the information
memorandum and terms and conditions of the public fund a clear policy covering
valuation, valuation points, pricing and dealing in units. The fund manager must
adopt a consistent approach to the valuation of units for the purposes of meeting
the subscription and redemption requests and transfer of units ownership.

e. In case the net value of the fund's assets is less than (10) million Saudi Riyals, the
fund manager must take the required corrective procedures specified in the fund's
terms and conditions and information memorandum to ensure meeting such
requirement.

f. The fund manager must inform the Authority immediately in case of not meeting
the requirement referred to in paragraph (e) of this Article.

g. The fund manager must comply with the provisions of Annex 6 of these
Regulations in relation to valuation of the public funds.

Article 67: Pricing of Units

a. The fund manager shall be responsible for calculating the price of the units in a
public fund for which it is the fund manager. The price of units for subscriptions
and redemptions on any dealing day shall be calculated by reference to the net
asset value per unit of the public fund at the valuation point on the relevant
dealing day.

b. Unit prices shall be expressed to at least four decimal places.

c. The fund manager must publish the net asset value per unit on the business day
following the dealings day on its website and on the exchange’s website;

Article 68: Incorrect Valuation or Pricing

a. The fund manager must record each instance where an asset of the public fund is
valued incorrectly or the price of a unit is calculated incorrectly.

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b. The fund manager must compensate all harmed unitholders (including former
unitholders) as soon as reasonably practicable for all valuation or pricing errors

c. The fund manager shall immediately report to the Authority any valuation or
pricing error of 0.5% or more of the price of a unit and disclose it immediately on
its website and on the exchange website and in the public fund's reports prepared
in accordance to articles (71) of these Regulations

d. The fund manager, in its reports to the Authority pursuant to Article (72) of these
Regulations, must provide a summary of all valuation and pricing errors.

PRIVATE FUNDS

Article 84: General Provisions

The fund manager must develop, maintain and disclose in the terms and conditions of the
fund a clear policy covering valuation, pricing and dealing in units. The fund manager
must also keep unitholders informed of any amendments to this policy immediately. The
fund manager must adopt a consistent approach to the valuation of units for the purposes
of the issue of units, the subscription or transfer of units and the redemption of units.

2.5 Independence of the Custodian

Learning Objective 7.5 – the Regulations stipulated the independence of the Custodian of public
and private funds.

Custody
Article 22: Scope and application
This Part shall apply to public funds and private funds.

Article 23: Appointment of Custodian

a. The fund manager must appoint one or more custodians in the Kingdom to take
custody of the assets of the investment funds which the fund manager manages.
The custodian must be appointed pursuant to a written contract.

b. The custodian appointed pursuant to paragraph (a) of this Article must not be a
fund manager or a fund sub-manager to the relevant fund, or an affiliate of the
fund manager or to the fund sub-manager.

c. The custodian appointed pursuant to paragraph (a) of this Article must be an

authorised person to conduct custody activity.

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Responsibilities of the Custodian:
Learning Objective – Reviewing the responsibilities of the Custodian and the importance of
Segregation of Assets

Article 25: Segregation of Assets

a. The custodian must, in relation to each investment fund to which it acts as

custodian, open a separate account in a local bank under its name with the account
designated as being for the benefit of the relevant investment fund.

b. The custodian must segregate each investment fund’s assets from its own assets
and from the assets of its other clients, and must separately identify, by
registration in the name of the custodian for the benefit of the relevant investment
fund the securities and other assets of such investment fund. The custodian must
register the real estate assets of the fund in the name of a subsidiary of the
custodian. The custodian must maintain all necessary records to support the
performance of its contractual responsibilities.

c. The custodian must deposit all cash belonging to the investment fund into the
relevant bank account referred to in paragraph (a) of this Article and must deduct
from the relevant bank account payments for investments and expenses incurred
in the management and operation of the investment fund in accordance with these
Regulations, the relevant terms and conditions (and the information memorandum
in respect to the public fund) that it received from the fund manager, and the
contract by which the custodian was appointment by the fund manager.

d. Real estate assets of a private real estate fund can be registered in the name of a
subsidiary of a lender, that extended a loan to the fund, as guarantee for the debt.

Article 27: Responsibilities of the Custodian

a. Notwithstanding the delegation by a custodian to one or more third parties under

the provisions of these Regulations or the Authorised Persons Regulations, the
custodian shall remain fully responsible for compliance with its responsibilities in
accordance to the provisions of these Regulations. The custodian shall be held
responsible to the fund manager and unitholders for any losses caused to the
investment fund due to the custodian fraud, negligence, misconduct or willful
default.

106
b. The custodian shall be responsible for taking custody and protecting the fund's
assets on behalf of unitholders, and taking all necessary administrative measures
in relation to the custody of the fund's assets.

2.6 Deferring Redemptions

Learning Objective 7.6 – Explaining the cases where fund manager may resort to suspending
or deferring the participation or the redemption, and what are the resulting procedures
thereof.

Article 61: Deferring Redemptions

a. A fund manager may defer fulfilling a request for redemptions from a public fund
until the next dealing day if the total of all unitholders’ redemption requests to be
fulfilled on any dealing day amounts to a total of 10% or more of the net asset
value of the public fund.

Each fund manager must adopt fair and equitable procedures by which those redemption
requests which are to be deferred are selected and disclose those procedures in the terms and
conditions and the information memorandum.

Article 62 Suspension of Subscription and Redemption of Units

a. The fund manager must suspend the subscription and redemption of units if the
Authority orders any such suspension.

b. The fund manager may not suspend the subscription and redemption of units ,
unless in the following circumstances:

1) if the fund manager reasonably believes that any such suspension is in the best interests
of the unitholders in the public fund; or
2) if there has been a suspension of dealing on the principal market in which the securities
or other assets held by the public fund are dealt, either in general or in relation to assets
of the public fund which the fund manager reasonably believes to be material to the net
asset value of the public fund.

c. For any suspension imposed by the fund manager pursuant to paragraph ( b) of

this Article:

1) the fund manager shall ensure that any suspension continues only for as long as it is
necessary and justified having regard to the best interests of the unitholders;
2) the fund manager shall review the suspension on a regular basis and shall consult with
the fund board and the custodian on a regular basis regarding the suspension;

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 3) the fund manager shall inform both the Authority and the unitholders immediately of
any suspension , and give the reasons for the suspension, and shall similarly inform both
the Authority and the unitholders as soon as the suspension ends and disclose it on its
website and on the exchange’s website;

d. The Authority shall have the power to lift such suspension if the Authority
believes that to do so is in the best interests of unitholders.

7. 7AUTHORIZATION REQUIREMENTS OF REAL ESTATE

INVESTMENTS FUNDS
Learning Objective 7.5 – Understand the requirements that have to be met by the applicant
seeking the Capital Market Authority Approval to offer units for a real estate investment fund
(part 1, Article 3)

The applicant, seeking the Authority approval to offer units for a Real Estate Investment Fund
should be authorized by the Authority to conduct managing business. Units of Real Estate
Investment Fund shall not be offered by way of a public offer unless the Authority has first
received and approved the information referred to in this article.

The application for offering units of Real Estate Investment Fund shall include the following
information:

1 - Details regarding the Fund Manager's organizational structure, including a description of the
investment decision making process of the fund manager, including the name and position of
any registered persons involved in those decisions.
2 - The name of the Compliance Officer or names of members of the Compliance Committee.
3 - Providing a feasibility study for the Fund.
4 - Nominating a Developer to attain the Fund’s purposes.
5 - The following information :
 The Fund’s Terms and Conditions signed by Fund Manager’s CEO and the Compliance
Officer. This should be prepared according to Annex (1) of these regulations, and is
considered a contract between the Fund Manager and the Unit holders.
 Type and purpose of the Fund, and proposed launch date.
 Subscription and Redemption forms.
 Any contracts entered into by the Fund Manager for the benefit of the fund, including
those made with affiliates or third parties in relation to the fund.

The applicant shall also provide any other requirement the Authority requests with accordance to
the regulations. Also, the Fund’s Terms and Conditions may not be changed except after
obtaining the Authority approval.

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7. 8PROCEDURES AND POWERS OF THE AUTHORITY IN RELATION
TO A REAL ESTATE INVESTMENT FUND APPLICATION
Learning Objective 7.6– Understand the steps and process followed by the Capital Market
Authority in considering application to offer units in real estate investment funds (Part 1, Article
4)

In considering an application to offer units in a Real State Investment Fund, the Authority may:

1 - Carry out any enquiries that it considers appropriate;

2 - Require the applicant or its representative, to attend before the Authority to answer questions
and explain any matter the Authority considers relevant to the application. An applicant
becomes subject to these Regulations from the date of submission of an application;
3 - Require the applicant to submit such additional information as the Authority considers
appropriate within 30 days of the request; and
4 - Verify any information furnished by the applicant.

The Authority may refuse to consider the application where an applicant has failed to provide the
required information, or has failed to provide them within the period specified in article 4. The
Authority reserves the right to refuse an application if it believes that the fund would not be in the
best interests of investors.

The Authority shall, upon receipt of all information and documents required, notify the applicant
in writing of the same, and shall take any of the following decisions within a maximum period of
(30) day from the date of the notice:

1. Approve the application in whole or in part;

2. Approve the application subject to such conditions and limitations as it considers appropriate;
3. Refuse the application, giving reasons.

The Authority will inform the applicant in writing with the decision it took regarding the request.
An applicant must not offer, market or advertise any units in the fund prior to receiving the
Authority’s approval decision.

7.9 VALUATION OF REAL ESTATE FUND ASSETS

Learning Objective 7.7 – Understand the requirement as to the valuation of real estate assets
(Part 3, Article 21)

(a) The authorized person shall, before purchasing or selling any of the Fund’s assets, obtain an
evaluation from two evaluators known for their experience, honesty and knowledge of real
estate activity and area under investment.
(b) They shall be independent from all Related Parties.
(c) The evaluation report shall contain as a minimum the following:
1 - The evaluation method, way and assumptions on which such evaluation is based.
2 - An analysis of the variables related to the real estate market, such as the demand and
supply and market trends.

109
 3 - Details and descriptions of the real estate.
4 - The risks related to the real estate subject to evaluation.
(d) On purchasing or selling any of the fund's assets, the Fund Manager may not rely on any
evaluation report prepared three months prior to purchasing or selling.

The regulation also hold the fund manager responsible for performing fair valuation to fund
assets, at least once every six months based on an evaluation prepared by two evaluators. Then
the net value of the unit shall be calculated by subtracting the Fund’s total liabilities from its total
assets, then dividing the result by the number of the fund's units, and this shall be considered as a
benchmark price of the unit. However, the fund manager may postpone the valuation of the
Fund’s asset after obtaining the Authority approval.

7.01 PRESENTING REPORTS TO UNITHOLDERS

Learning Objective 7.8 – Understand the reporting requirement by the fund manager to funds’
unit holders (Part 3, Article 23)

The Fund Manager issues a confirmation to the Unit holder on subscription to the Fund’s units.
The Fund Manager shall provide Unit holder with reports every six months as maximum once,
which includes the following:

1 - Net asset value of the Fund.

2 - Number of units each holder owns and their net value.
3 - Any profit paid after the last report provided to the Unit holders.

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 7 Review Questions: Investment Funds and Real
Estate Investment Funds Regulations

1 - The interim reports must be prepared and made available to the public within ……..
days from the end of the period of the report.
(a) 40
(b) 35
(c) 10
(d) 5.

2 - As When offering private fund units, the sophisticated investors mean:

(a) Authorised persons acting for their own account.
(b) Professional Investors.
(c) Institutions acting for their own account
(d) All the above.

3 - The offering of a foreign fund units by means of private placement if:

(a) the minimum amount payable per offeree is not less than Saudi Riyals one million or an
equivalent amount.
(b) the minimum amount payable per offeree is not less than Saudi Riyals 5 million or an
equivalent amount
(c) the minimum amount payable per offeree is not less than Saudi Riyals 10 million or an
equivalent amount
(d) the minimum amount payable per offeree is not less than Saudi Riyals 15 million or an
equivalent amount

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4 - An application to the Authority for approval to offer units in a new investment fund
may only be made by a person authorized by the Authority to conduct ……….
Activities.
(a) Advising.
(b) Custody.
(c) Dealing.
(d) Managing.

5 - The Real Estate Investment Fund manager shall provide unit holders with reports
every ………… at the minimum which should contain the number of units held their
net asset value and profits distribution
(a) Month
(b) Three months
(c) Six months
(d) Year

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8 MERGERS AND ACQUSITIONS
REGULATIONS

LEARNING OBJECTIVES
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text.

INTRODUCTION

8.1 GENERAL PRINCIPLES

8.2 RULES OF OFFERS

8.3 ANNOUNCEMENT AND TAKEOVER TIMETABLE

8.4 RESPONSIBILITIES OF THE OFFEROR AND THE OFFEREE COMPANY

Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

113
INTRODUCTION
The Provisions of the Regulations apply to the following:

1) Any purchase or sale of shares with voting rights of listed companies, resulting in an
ownership or control of a person, individually or collectively by acting in concert,
over ten percent (10%) or more of the relevant Offeree Company; or
2) Any Offer to purchase shares with voting rights of listed companies, if the percentage
of shares sought to be acquired by the Offeror would increase its ownership,
individually or collectively by acting in concert, or the shares under their Control, to
ten percent (10%) of more of the shares of the relevant Offeree Company, and of that
same shares class.

The parties to whom the Regulations apply include:

1) Any person who deals in the Exchange, including (without limitation) issuers,
shareholders, authorized persons, and any person involved directly in participating or
giving an advice on any transaction regulated by these Regulations;
2) Directors of companies which are subject to these Regulations; and
3) Any person who seek the Acquisition of, or increase its shares in, any company
subject to this regulation.

8.1 GENERAL PROVISIONS

Learning Objective 8.1 – Understand the general principles underlying mergers and acquisition
activity in the Saudi Market. (Part 1, art.3)

The following general principles apply to mergers and acquisitions:

a) Except in private transactions, an Offeror or Offeree Company must appoint their

Independent Financial Advisor who shall be approved by the Authority, and an
Independent Legal Advisor, who shall be authorized to practice law in Saudi Arabia. The
Independent Financial Advisor of the Offeror or Offeree Company shall be the point of
contact to coordinate with the Authority on behalf of the party each of them represents, in
respect of the potential Acquisition or the potential Merger.
b) Parties involved in Acquisitions or Mergers must take care that information made
available for the purpose of the Acquisition or Merger are not made in a way that may
mislead shareholders or the Exchange.
c) In the case of an Offer, all shareholders of the same class of an Offeree Company must be
treated equally by an Offeror.
d) Any document or announcement related to an Offer or potential Offer, addressed by the
Offeror, the board of the Offeree Company or their respective advisors, to shareholders,
must be true, fair and not misleading.
e) An Offeror should only announce an Offer after the most careful consideration in
accordance with the provisions of these Regulations, and if it firmly believes that it can

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 and will continue to be able to implement the Offer; responsibility for advising the
Offeror and ensuring all reasonably steps are taken in this respect rests on the financial
advisor of the Offeror.
f) In case of an Offer, the Offeror and the board of directors of the Offeree Company must
give sufficient information and advice to the shareholders of the Offeree Company to
enable them to reach a properly informed decision to accept or reject the offer, and must
have sufficient time to do so. No relevant information should be withheld from them.
g) All persons who have access to confidential information, especially information that are
price sensitive, regarding the acquisition or any similar transaction, shall deal with such
information in confidential manner, and it shall not be provided to any person unless it's
necessary to do so, provided that such person is aware of the importance of
confidentiality. Moreover, such persons shall act in manner that eliminates the chances of
a leak of the information that are price sensitive.
h) Where there are Related Parties to an Acquisition to which these Regulations apply, there
must be full disclosure of the Related Party’s interest in the transaction to the affected
shareholders prior to completion of that transaction. Any such transaction must be on
arm’s length terms.
i) The board of an Offeree Company must always act in the best interests of its
shareholders.
j) A shareholder who owns shares with offeror (or Merging Company) and the offeree
company (or the merged company) may not vote in shareholders general assembly on
decisions related to offers subject to this regulation, except in one of these companies.
k) A director shall not vote at a meeting of board or of its committees or a general assembly
meeting on any resolution concerning an offer subject to these Regulations or any other
relevant matter where the director, any relative or representative of his/her has a conflict
of interest. In this context such a conflict of interest would arise if:
1) the director has, directly or indirectly, an interest related to the offer or the
potential offer.
2) the director is a shareholder in the Offeror and at the same time he/she is a
director of the Offeree Company board, or vice versa.
3) the director is a director of the Offeror board and at the same time he/she is a
board member of, or a manager in the Offeree Company, or vice versa.
l) For the purposes of these Regulations, an interest of a person who is a relative or an
affiliate of a director shall be treated as an interest of the director.

8.2 RULES OF OFFERS

Learning Objective 8.2 – Understand the rules that govern the initial steps of an offer (Part.2,
art. 51)

The Rules aim at directing and controlling offers from their early steps in order to make sure that
the process is fair to shareholders and to make sure that the offer is made with full intention of
honoring it. The rules specify that:

a) An Offer must be put forward to the board of the Offeree Company or to its
Independent Financial Advisor on or before it is made to the shareholders of the
offeree company.

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 b) Any Offer, or an approach with a view to an Offer being made, must make clear the
identity of the substantial shareholders of the Offeror or potential Offeror or any persons
Acting in Concert with the Offeror or potential Offeror.

c) If the Offer, or an approach with regard to a possible Offer, is not made by the Offeror or
potential Offeror, the identity of that Offeror or potential Offeror must be disclosed to the
board of the Offeree Company at the outset of the Offer or the approach with regard to a
possible Offer.

8.3 ANNOUNCEMENTS AND TAKEOVER TIMETABLE

Learning Objective 8.3 – Understand the public announcements relating to an takeover (Part.2,
art.17-a)

The regulations require that all persons privy to confidential information, and particularly price
sensitive information, concerning an offer or contemplated offer must treat that information as
secret and may only pass it to another person if it is necessary to do so and if that person is made
aware of the need for secrecy. All such persons must conduct themselves so as to minimize the
chances of a leak of information.

However, a public announcement is required to be promptly made in the following

circumstances:

1) When firm intention to make an Offer (the making of which is not, or has ceased to be,
subject to any pre-condition, other than the General Authority for Competition’s approval
in accordance with Article 5 of these Regulations) is notified to the board of the Offeree
Company in accordance with paragraph (e) of this Article, irrespective of the attitude of
the board of directors of the Offeree Company to the Offer;

2) upon an Acquisition of shares by a person which gives rise to an obligation to make an

Offer under paragraph (a) of Article 23 of these Regulations. The announcement shall not
be delayed even if all relevant information was not obtained, as additional information
can be the subject of a later supplementary announcement;

3) when a person, individually or acting in concert with the others, owns 40% of the shares
carrying voting rights in the offeree company as per Article 24 of this regulation;

4) When, before a bid approach has been made, the Offeree Company is the subject of
rumors and speculations or where there is an untoward price movement of 10% or more
within a single day and there are reasonable grounds for concluding that it is the potential
Offeror’s actions which have led to the situation;

5) When, following a bid approach, an Offeree Company is the subject of Offer-related

rumors and speculations, or where there is an untoward price movement in the Offeree
Company shares of 20% or more of the lowest share price since the time of the approach
or a price movement of 10% or more in a single day;

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 6) When negotiations or discussions regarding an Acquisition relating to shares listed on the
Exchange carrying 30% or more of the voting rights of a company, or when the board of
a listed company is seeking one or more potential Offerors, to include more than a very
restricted number of people (outside those who need to know in the companies concerned
and their immediate advisors).

8.4 RESPONSIBILITIES OF OFFEROR AND THE OFFEREE

COMPANY
Learning Objective 8.4 – Understand the responsibilities under the mergers and acquisition
regulations of the offeror and offeree companies (Part 2, Article 17-b).

The regulation delineated the following requirements as responsibilities of the offeror, the offeree
or both:

1) Before the board of the Offeree Company is approached, the responsibility for making the
announcement required under paragraph (a) of this Article lies only with the Offeror. The
Offeror should, therefore, keep a close watch on the Offeree Company’s share price for
any signs of untoward movements in the Offeree Company’s share price or where the
Offeree Company is the subject to Offer-related rumors or speculations. The Offeror is
also responsible for making an announcement once an obligation is incurred as per Article
23 of Merger and Acquisition Regulations.
2) Following an approach to the board of the Offeree Company which may or may not lead
to an Offer, the primary responsibility for making the announcement required under
paragraph (a) of this Article will rest with the board of the Offeree Company which must,
therefore, keep a close watch on its share price for any untoward movement or if it is the
subject of Offer-related rumors or speculations.
3) Where there is a recommendation from the Offeree Company’s board of directors to
accept the Offer and to submit an application to the Authority to grant a temporary
suspension of trading, and the Authority has granted such suspension, the Offeree
Company may instead of announcing, obtain the temporary suspension and make the
announcement afterwards.
4) A potential Offeror must not attempt to prevent the board of an Offeree Company from
making an announcement or requesting the Authority to grant a temporary suspension of
trading.

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 8 Review Questions: Mergers and Acquisitions
Regulations

1. A director shall not vote at a meeting of board or of its committees or a general

assembly meeting on any resolution concerning an offer subject to these Regulations or
any other relevant matter where the director, any relative or representative of his/her
has a conflict of interest. In this context such a conflict of interest would arise if:
a. the director has, directly or indirectly, an interest related to the offer or the
potential offer.
b. the director is a shareholder in the Offeror and at the same time he/she is a
director of the Offeree Company board, or vice versa.
c. the director is a director of the Offeror board and at the same time he/she is a
board member of, or a manager in the Offeree Company, or vice versa.
d. All the above.

2. A public announcement is required to be promptly made When, following a bid

approach, or where there is an untoward price movement in the Offeree Company
shares of .......... or more of the lowest share price since the time of the approach or a
price movement of ......... or more in a single day:

a. 10%,10%.
b. 10%,20%
c. 20%,10%.
d. 20%,20%.

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 9 Anti – Money Laundering and Counter
Terrorist Financing Rules

9.1 Objective of the anti – money laundering (AML) and counter terrorist
financing (CTF) rules

9.2 Definitions

9.3 General application of AML/CTF requirements

9.4 Application of policies and procedures to overseas branches and subsidiaries

9.5 Customer due diligence

9.5.1 Client evaluation
9.5.2 Client identification
9.5.3 Customer risk based due diligence approach
9.5.4 High risk clients
9.5.5 When authorized person must perform CDD

9.6 Case when verification are not needed

Review Questions

Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

119
9.1 OBJECTIVES OF THE ANTI- MONEY LAUNDERING (AML)
AND COUNTER TERRORIST FINANCING (CTF) RULES
Learning Objective 9.1 – Understand the objectives of Anti- Money Laundering (AML) and
Counter Terrorist Financing (CTF) Rules (Part 1, Article 1)

The objectives of the AML and CTF rules are to make sure that all Authorized Persons (APs)
comply fully with the controls and procedures issued by the Capital market Authority (CMA) to
ensure :

a - Full application of the Anti-Money Laundering Law and its implementing regulations and all
the relevant international recommendations and resolutions issued by the United Nations and
other international bodies.
b - The maintenance of the credibility and integrity of the capital market, and
c - Authorized persons and their clients are protected from illegal transactions involving money
laundering, terrorist financing or other criminal activity.

9.2 DEFINITIONS
Learning objective 9.2 – Know the definitions of Money Laundering and Terrorist Financing
(part1, Article 2)

Under the Anti-money laundering (AML) and Counter-Terrorist financing (CTF) rules money
laundering has been defined to mean:

“Committing or attempting to commit any act for the purpose of concealing or disguising the true
origin of funds acquired by means contrary to Sharia’s or law, thus making the funds appear as if
they had come from a legitimate source”.

Thus, anti- money laundering rules are designed to act as deterrence of activities such as those
defined to constitute acts of money laundering. On the other hand terrorist financing is taken to
mean the financing of terrorist acts, terrorists and terrorist organizations. Any of these three types
of financing activities is targeted by CMA rules.

1. Authorised Person must, in establishing policies and procedures to prevent money laundering
and terrorist financing, consider carefully the specific nature of its business, organisational
structure, type of client and transaction, and shall ensure that the measures taken by it are
adequate and appropriate to meet the requirements and general objectives set out in these Rules.

2. Saudi Arabia has ratified and implemented the United Nations Convention on Illicit Traffic in
Narcotic Drugs and Psychotropic Substances (Vienna 1988), the United Nations Convention on

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Organized Crime (Palermo 2000) and the International Convention for Suppression and
Financing of Terrorism (New York 1999). These Conventions require to establish systems,
controls and procedures aimed at preventing money laundering and terrorist financing, including
procedures for reporting suspected money laundering or terrorist financing transactions. The
board of directors and the general manager or the owner or the delegate of Authorised Person is
responsible for establishing appropriate and effective policies and procedures for the prevention
of money laundering and terrorist financing and to ensuring compliance with those policies and
with all relevant legal and regulatory requirements. To ensure this, senior management must
appoint a director or senior manager with direct responsibility for over-sighting compliance with
the AML/CFT policies and procedures and relevant legal and regulatory requirements. This does
not apply to authorized person whose licensed business activity is limited to managing non-real
estate investment funds or managing the portfolios of sophisticated investors, arranging or
advising when outsourcing the function of the AML / CFT, on condition that the authorized
person shall instruct all its employees to refer promptly any complex, huge or suspicious
transaction or process that raises suspicions and or suspected transaction relating to money
laundering, terrorist financing or the financing of terrorists or terrorist organizations to the
AMLRO of the outsourcee. Such an AMLRO may consider reporting such an accident to the
Financial Investigation Unit. Such an outsourcee shall be responsible for ensuring compliance
with the requirements set out in the AML/CTF rules and its Implementing Regulations and shall
inform the administrative body of the authorized person of matters relating to money laundering
and the financing of terrorism

9.3 GENERAL APPLICATION OF (AML / CFT) REQUIREMENTS

Learning Objective 9.3 – Understand the general requirements of AML/CFT rules (Part1,
Article 3)

The rules specified four general requirements that APs must ensure that they are at work in order
to prevent money laundering and terrorist financing. These are:

(a) issue an effective statement of policies and procedures aimed at preventing money laundering
and terrorist financing, and ensuring compliance with current legal and regulatory
requirements including the maintenance of records; and co-operation with the FIU and
relevant law enforcement authorities in accordance with the relevant regulations and rules,
including the timely disclosure of information;
(b) ensure that the content of these Rules is understood by all officers and employees, and that
they are aware of the requirements and vigilant in guarding against money laundering and
terrorist financing;

(c) regularly review the policies and procedures on prevention of money laundering and terrorist
financing to ensure their effectiveness. For example, reviews performed by the internal audit
or compliance officer to ensure compliance with policies, procedures and controls relating to
prevention of money laundering and terrorist financing (areas of review shall include: (i) an

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 assessment of the system for detecting suspected money laundering and terrorist financing
transactions; (ii) evaluation and checking of the adequacy of reports generated on large and /
or irregular transactions; (iii) review of the quality of reporting of suspicious transactions; and
(iv) an assessment of the level of awareness of front line staff regarding their
responsibilities); and

(d) adopt client acceptance policies and procedures, and undertake required Customer Due
Diligence (“CDD”) measures, as set out in Part (3), including taking into account the risk of
money laundering and terrorist financing depending on the type of client, business
relationship or transaction.

9.4 APPLICATION OF POLICIES AND PROCEDURES TO

OVERSEA BRANCHES AND SUBSIDIARIES
Learning Objective 9.4 – Understand the AML/CTF requirements with respect to overseas
branches and subsidiaries (Part1, Article 4)

Article 4 of the AML/CTF rules requires that all Authorized people with overseas branches and
majority owned subsidiaries must:

1 - Ensure that its overseas branches and majority-owned subsidiaries (“subsidiaries”) comply
with the laws and regulations of Saudi Arabia concerning money laundering and terrorist
financing, and the Financial Action Task Force on money laundering and terrorist financing
(FATF) recommendations , to the extent that the laws and regulations applicable in the host
country permit.

2 - Pay particular attention to the application of paragraph (1) of this article in its branches and
subsidiaries which are located in countries that do not or insufficiently implement the FATF’s
Recommendations including jurisdictions designated as such by the FATF.

3 - Where the minimum AML/CFT requirements of Saudi Arabia and host countries differ,
branches and subsidiaries in host countries shall apply the higher standard, to the extent that
host country laws and regulations permit. Where the law of the host country conflicts with
Saudi Arabian law or regulations such that the overseas branch or subsidiary is unable to fully
observe the higher standard, the Authorized Person’s head office shall report this to the
Authority and comply with such further directions as may be given by it.

4 - Where an overseas branch or subsidiary is unable to observe group standards because this is
prohibited by host country laws, regulations or other measures, the Authorized Person shall
inform the Authority immediately.

9.5 CUSTOMER DUE DILIGENCE

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9.5.1 CLIENT EVALUATION
Learning Objective 9.5.1 – Understand the requirements of developing client acceptance
policies and procedures by Aps (Part3, Article 7)

Before accepting any client, the authorized person must prepare a “Know Your Customer” form
containing the information required by the Authorized Persons regulations and the other
information required by these rules.

Furthermore, Authorized Persons must develop client acceptance policies and procedures that aim
to identify the types of clients that are likely to pose a higher risk of money laundering and
terrorist financing. Factors to consider include, as examples:

(a) The background or profile of the client;

(b) The nature of the client’s business, and the degree of money laundering or terrorist financing
risk;
(c) The place of establishment of the client’s business and location of the counterparties with
which the client does business, such as countries designated by the FATF or those known to
the Authorized Person to lack proper standards in the prevention of money laundering or
terrorist financing;
(d) Unduly complex structure of ownership for no good reason;
(e) Means of payment as well as type of payment (third party cheque the drawer of which has no
apparent connection with the prospective client may be a cause for increased scrutiny);
(f) Any other information that may suggest that the client is of higher risk (e.g. knowledge that
the client has been refused a business relationship by another financial institution).
Additionally, Authorized Person must reconsider the risk categorization of a client if,
following acceptance of the client, the pattern of account activity of the client does not fit in
with the Authorized Person’s knowledge of the client. Authorized Person must also consider
making a Suspicious Transaction Report (STR). Moreover, Authorized Person must not
accept any client or open an account for a client without meeting the client directly face-to-
face, except where article (14) of these Rules applies.

9.5.2 CLIENT IDENTIFICATION

Learning Objective 9.5.2 – Understand the requirements that clients be identified and verified
by Authorized Persons (Part 3, Article 8)

The rules require that Authorized Persons must take all steps necessary to be able to establish the
true and full identity of each client, and of each client’s financial situation and investment
objectives. Authorized Person must not open anonymous accounts, accounts using false or
fictitious names, or accounts for prohibited persons notified by the Authority.

The customer due diligence process generally involves the following steps:

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(a) Identify the client and verify their identity using the original documents prescribed in the
AML Law and its implementing Regulation and paragraph (4) of this article. This also
applies to all persons with signatory authority over the account;

(b) Identify and verify beneficial ownership and control using the original documents prescribed
in the AML Law and its implementing Regulation and paragraph (4) of this article.

(c) Obtain information on the purpose and intended nature of the business relationship –
depending on the type of client, business relationship or transaction, Authorized Person must
obtain sufficient information such that ongoing due diligence on the client can be
appropriately conducted; and

(d) Ensure applying ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of the
transactions and account throughout the course of the business relationship to ensure that the
transactions being conducted are consistent with the Authorized Person’s knowledge of the
client, the client’s profile, taking into account, where necessary, the client’s source of funds.

9.5.3 CUSTOMER RISK BASED DUE DILIGENCE APPROACH

Learning Objective 9.5.3 – Understand the factors that lead to reduced or enhanced customer
due diligence requirements by the Authorized Persons (Part3, Article 9)

Authorized Persons are allowed to perform reduced customer due diligence (CDD) measures on
a client, if that client is:

(a) A company listed on the stock exchange of a country sufficiently implement the FATF’s
Recommendations

(b) A subsidiary of such a listed company. In such a case, only the requirements of article
8(2)(a),(c) and (d) need be carried out. However, where such a listed company is closely held
i.e. subject to the beneficial ownership/control of an individual or a small group of
individuals, an Authorized Person shall carefully review the AML/CFT risks and consider
whether it is necessary to verify the identity of such individual(s).

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On the other hand, Authorized Person must adopt an enhanced CDD process for higher risk type
of clients, business relationships or transactions. Authorized Person must exercise its own
judgment and adopt a flexible approach when applying the specific enhanced CDD measures to
clients of particular high risk types.

To account for client level of risk, Authorized Person must establish clearly in its client
acceptance policies the risk factors for determining what types of clients and activities are to be
considered as high risk. While recognizing that no policy can be exhaustive in setting out all risk
factors that must be considered in every possible situation, such risk factors must include client
risk, country, geographic risk and product/service risk.

9.5.4. HIGH RISK CLIENTS

Learning Objective 9.5.4 – Know the clients which are considered high risk under the rules
(Part3, Article 9-11)

The rules considered the following types of clients as high risk:

(a) Politically exposed persons (PEP): Politically Exposed Person (PEP): is any individual who
occupies, has recently occupied, is actively seeking or is being considered for, a senior civil
position in a government of a country, state or municipality or any department including the
military, any agency, government-owned company. The definition of PEP includes members
of immediate family and close associates, collectively known as Related Individuals.
Immediate family is typically defined as any known individual who is a member of the PEP’s
immediate family (i.e. spouse, parent, sibling or child).
(b) Close associate is defined as any individual who is a senior advisor closely associated with or
an agent of the PEP.
(c) Non-profit Organizations & Entities, which refers to a legal person who is an entity or an
organization that primarily engages in raising/collecting donations and/or disbursing funds
for nonprofit purposes.
9.5.5 WHEN AUTHORIZED PERSON MUST PERFORM CDD
Learning Objective 9.5.5 – Know the situations where Authorized Persons must carry out
Customer Due Diligence (Part3, Article 12):

An Authorized Person must carry out CDD measures when it:

(a) opens an account or establishes a business relationship;
(b) Suspects money laundering or terrorist financing; or
(c) Doubts the veracity of documents, data or information previously obtained for the purpose of
identification or verification.
In general, an Authorized Person must verify the identity of the client or potential client and
beneficial owner before or during the course of establishing the business relationship. When the
Authorized Person is unable to perform the CDD process satisfactorily at the account opening
stage, it must terminate the business relationship and not perform any transaction, and must
consider whether a Suspicious Transaction Report (STR) must be made.

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9.6 CASES WHEN VERIFICATION ARE NOT NEEDED
Learning Objective 9.6 – Know the cases where identification and verification are not required
by the Authorized Persons (Part 3, Articles 13-14)

The following situations represent cases where Client identification and verification is not
required to be carried out by the Authorized Persons:

1 - Where Authorized Person acts for a client who is investing in an investment fund or a real
estate investment fund, Authorized Person must carry out CDD on the client and shall
comply with the other requirements of these Rules, except that where the client is a
counterparty, the Authorized Person need not identify and verify the identity of the
beneficial owners that are investing through the counterparty, provided that the following
requirements are met:.
(a) The counterparty is regulated, and licensed by the relevant government authority;
(b) The counterparty is based in a jurisdiction that adequately applies the FATF
Recommendations;
(c) The counterparty is applying, as a minimum, requirements for AML/CFT (including
measures for CDD and identification of beneficial owners) that are consistent with the
requirements of these Rules and of the FATF Recommendations and
(d) The counterparty has entered into an agreement with the Authorized Person agreeing,
that upon the request of the Authorized Person or the Authority, the counterparty will
provide any information requested regarding the beneficial owners.

2- If the client is introduced to an Authorized Person by a third party that performs the client
identification and verification. A third party must either be a commercial bank or financial
institution that engages in securities activities. However, the ultimate responsibility of client
identification and verification always remains with the Authorized Person and not with the
third party. Authorized Person can only rely on third parties to perform the CDD if:

(a) The client is located in a country other than Saudi Arabia.

(b) The third party is regulated and supervised by a competent authority,

(c) H measures in place to comply with CDD and record keeping requirements in line with
these rules and the FATF recommendations.

Additionally, Authorized persons must conduct periodic reviews to ensure that a third party upon
which it relies, continues to conform to the criteria set out above. This may involve review of the
relevant policies and procedures and sample checks of the due diligence conducted. Authorized
persons must not rely on third parties based in country considered as high risk, such as countries
that have no or inadequate AML/CFT systems.

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9 Review Questions: Anti – Money Laundering and
Counter Terrorist Financing Rules

1 - Which of the following is NOT related to money-laundering?

(a) The money is generated from illegal or non-halal sources.
(b) Transactions are conducted to move the money in different ways and directions in
an effort to lose track the origins of the money.
(c) The “cleaned” money that appears to come from legitimate sources is used in
legal economic activities.
(d) The money is used to finance terrorist activities.

2 - Which of the following is NOT a relevant factor in determining whether a particular

client or type of client is of a higher risk, for the purpose of conducting an enhanced
customer due diligence:
(a) The nature of the client’s business, and the possibility of being associated with
money laundering activities.
(b) Knowledge that the client has not been refused a business relationship by a
financial institution.
(c) The place of establishment of the client’s business and location of the
counterparties, such as countries designated by the FATF.
(d) Unduly complex structure of ownership of the client’s business.

3 - Which of the following is NOT a politically exposed person (PEP) as defined under
AML/CTF Rules?
I) A senior officer in the government and his/her relatives or friends.
II) A senior officer in a government-owned company and his/her relatives or
friends.
III) A senior officer in a listed company and his/her relatives or friends.

(a) I only.
(b) II only.
(c) I and II only.
(d) I, II and III.

4 - The AML/CTF Rules require an enhanced due diligence by authorized persons to

clients who are classified as non-profit organizations (NPO) for the following
reason:
(a) They might be used as vehicles for terrorist financing.
(b) They raise money from donations for charitable purposes.
(c) They are usually related to money-laundering activities.
(d) All the above.

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10 Corporate Governance Regulations
Introduction

10.1 Rights of shareholders

10.1.1
Rights related to shares.
10.1.2
shareholders Assembly
10.1.3
Management of the Shareholders' Assembly
10.1.4
Distribution of Dividends

10.2 Disclosure and transparency

Review Questions

128
Learning objectives
The syllabus for this examination is broken down into a series of learning objectives and is
included in the Syllabus Learning Map at the back of this workbook. Each time a learning
objective is covered, it appears in a text box preceding the text

129
INTRODUCTION
The corporate governance Regulations include the rules and standards that regulate the
management of joint stock companies listed in the Exchange to ensure their compliance with the
best governance practices that would ensure the protection of shareholders’ rights as well as the
rights of stakeholders.

This chapter summarizes some of the main features of the regulations that are seen as appropriate
for the CMA general securities examination. Interested candidates can always consult the
regulation for more details.

10.1 RIGHTS RELATED TO SHARES

10.1.1 RIGHTS RELATED TO SHARES
Learning Objective 10.1.1 – Understand the rights of shareholders of listed companies in the
Saudi Market (Part 2, chapter 1,Article 5)

The shareholder of a joint stock listed company in Saudi market is entitled to all rights attached to
a share of common stock. In particular the shareholder is entitled to:
(a) obtain his/her portion of the net profits which are to be distributed in cash or through the
issuance of shares;
(b) obtain his/her share of the Company’s assets upon liquidation;
(c) attend the General or Special Shareholders Assemblies, take part in their deliberations
and vote on their decisions;
(d) dispose of his/her shares in accordance with the provisions of the Companies Law, The
Capital Market Law and their implementing regulations ;
(e) enquire and request viewing the books and documents of the Company, including the
data and information related to the activities of the Company and its operational and
investment strategy without prejudice to the interests of the Company or breach of the
Companies Law and the Capital Market Law and their implementing regulations;
(f) monitor the performance of the Company and the activities of the Board;
(g) hold Board members accountable, to file liability lawsuits against them and appeal for
nullification of the resolutions of the General and Special Shareholders Assemblies in
accordance with the conditions and restrictions provided in the Companies Law and the
bylaws of the Company;
(h) preemptive rights to subscribe for new shares issued in exchange for cash unless
otherwise specified in the Company’s bylaws or when the Extraordinary General
Assembly suspends the pre-emptive rights are per Article (140) of the Company's Law.
(i) record his/her name in the Company’s shareholders register;
(j) request to view a copy of the Company’s articles of association and bylaws unless the
Company publishes them on its website; and
(k) nominate and elect the Board members.

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10.1.2 SHAREHOLDERS ASSEMBLY
Learning Objective 10.1.2 – Understand the rights of shareholders and the rules governing
general assemblies of listed companies in the Saudi Market (Part 2, Chapter 2, Article 5)

General Shareholders Assemblies of the Company are competent in all of its affairs. A duly-
constituted General Assembly represents all shareholders in exercising their powers in respect of
the Company. The General Assembly shall exercise its role in accordance with the provisions of
the Companies Law and Its Implementing Regulations and the Company's bylaws. The following
should be taken into consideration upon calling or the convention of a general assembly:

(a) The Ordinary General assembly shall convene in accordance with the situations and
circumstances stated in the Companies Law and Its Implementing Regulations and the
Company’s bylaws.
(b) The Ordinary General Assembly shall convene at least once per year within the six
months following the end of the Company's financial year.
(c) The General and Special Shareholders' Assemblies shall convene upon an invitation from
the Board in accordance with the situations stated in the Companies Law and Its
Implementing Regulations and the Company’s bylaws. The Board shall invite the
Ordinary General Assembly to convene upon the request of the external auditor, the
audit committee or a number of shareholders holding shares equal to at least (5%) of the
share capital of the Company. The external auditor may invite the assembly to convene if
the Board does not invite the assembly within thirty days from the date of the external
auditor's request.
(d) The date, place and agenda of the General Assembly shall be announced at least ten days
prior to the date thereof; the invitation shall be published on the website of the Exchange,
the Company's website and in a daily newspaper distributed in the province where the
Company's head office is located. The Company may invite the General and Special
Shareholders' Assemblies to convene using methods of contemporary technologies.
(e) The Company may amend the agenda of the General Assembly within a period between
publishing the announcement referred to in paragraph (d) of this Article and the date of
convening the General Assembly meeting, provided that the Company shall announce
this as prescribed in paragraph (d) of this Article.
(f) Shareholders shall be granted the opportunity to effectively participate and vote in the
General Assembly meetings. The meetings of the General Assemblies of shareholders
may be convened and shareholders may participate in their deliberations and vote on their
resolutions using methods of contemporary technologies pursuant to the Regulatory
Rules and Procedures issued pursuant to the Companies Law related to Listed Joint Stock
Companies.
(g) The Board shall work on facilitating the participation of the largest number of
shareholders in the meetings of the General Assembly, including choosing the
appropriate place and time of such meeting.
(h) The Company shall ensure recording the details of the shareholders who desire to attend
at the Company's head office prior to the specified time for convening the assembly,
unless the Company's bylaw state other means.

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10.1.3 MANAGEMENT OF THE SHAREHOLDERS' ASSEMBLY
Learning Objective 10.1.3 – Understand management of the shareholders’ assembly of joint
stock listed companies in Saudi Arabia (Part 2, Chapter 2, Article 13)

The regulation has delineated the management of the shareholders’ assembly :

a) The Shareholders' General Assembly meetings shall be chaired by the chairman, his deputy
(if the chairman is absent) or whom is delegated by the Board of directors of its members
(when the chairman and his deputy are absent).
b) The chairman of the Shareholders' Assembly shall commit to grant the shareholders the
opportunity to effectively participate and vote in the meetings of the General Assembly, and
avoid any procedure that may preventing their attendance to the assemblies or the exercise of
the voting right. Shareholders shall be informed of the rules governing such meetings and the
voting procedures.
c) Shareholders are entitled to discuss matters listed in the agenda of the General Assembly and
raise relevant questions to the Board members and to the external auditor. The Board or the
external auditor shall answer the questions raised by shareholders to the extent that does not
jeopardise the Company’s interest.
d) Shareholders shall be granted access to the minutes of the General Assembly meeting; and
the Company shall provide the Authority with a copy of such minutes within (10) days of the
date of any such meeting.
e) A Company shall announce to the public and inform the Authority and the Exchange, as per
the rules prescribed by the Authority, of the results of a General Assembly meeting
immediately following its conclusion.

10.1.4 DISTRIBUTION OF DIVIDENDS

Learning Objective 10.1.4 – Understand the rights of shareholders of joint stock listed
companies in Saudi Arabia related to the distribution of dividends (Part 2, Chapter 1, Article 9)

The general rights of shareholders related to the distribution of dividends are as follows:

a) The Company’s bylaws shall prescribe the percentage of the net profits to be distributed
to the shareholders after setting aside the statutory reserve and the other reserves.

b) The Board shall establish a clear policy for the distribution of dividends to achieve the
interests of the shareholders and the Company as per the Company's bylaw.

c) The shareholder is entitled to receive his/her share of dividends as per the decision of the
General Assembly in respect of the distribution of dividends to shareholders or the Board
resolution on distributing interim dividends. The resolution shall specify the record date
and the distribution date provided that the resolution shall be executed as per the

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 Regulatory Rules and Procedures issued pursuant to the Companies Law related to Listed
Joint Stock Companies.

10.2 DISCLOSURE AND TRANSPARENCY

Learning Objective 10.2 – Understand the disclosure rights of shareholders of joint stock listed
companies in Saudi Arabia (Part 9, Articles 89,90,91,92, and 93)

The regulation addresses a number of elements relating to disclosure and transparency. The first
one relates to the policies and procedures of disclosure. The second element describes the
particulars of disclosure in the board of directors’ report. Moreover, the regulation address the
audit committee report, disclosure of the members of the board, disclosure of the remuneration of
the board’s members and the executive management. These particulars are in addition to what is
required in the listing rules regarding the content of the Board of Directors report. The Board of
Directors report shall include the following:

a) implemented and non-implemented provisions of these Regulations, and justifications

therefor;
b) names of the companies inside and outside the Kingdom in which a Board member is a
member of their current or previous Board member or manager;
c) composition of the Board and classification of its members, as follows: Executive Directors,
Non-Executive Director, or Independent Director;
d) a brief description of the competencies and duties of the committees, such as the audit
committee, the nomination committee and the remuneration committee indicating their
names, names of their chairmen, names of their members, the number of their respective
meetings, dates of those meetings and the members' attendance details of each meeting;
e) disclose the remuneration of the Board members and Executive Management as stated in
Article (93) of these Regulations;
f) any punishment, penalty, precautionary procedure or preventive measure imposed on the
Company by the Authority or any other supervisory, regulatory or judiciary authority,
describing the reasons for non-compliance, the imposing authority and the measures
undertaken to remedy and avoid such non-compliance in the future;
g) results of the annual review of the effectiveness of the internal control procedures of the
Company and the opinion of the audit committee with respect to the adequacy of the
Company's internal control system.

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 10 Review Questions: Corporate Governance
Regulations

1 - The following are the rights of the shareholders of a joint stock company listed in the
Saudi market EXCEPT:
(a) The right to a share of the distributable profits.
(b) The right to a share of the company’s assets upon liquidation.
(c) The right to attend the General Assembly and participate in deliberations and vote
on relevant decisions.
(d) The right to supervise the management activities, and file responsibility claims
against the company’s management.

2 - The shareholders of listed companies must be informed of the date, place, and agenda
of the company’s General Assembly, at least …………… prior to the date of the
meeting.
(a) 7 days.
(b) 10 days.
(c) 20 days.
(d) 30 days.

3 - With respect to disclosure and transparency, the Regulations require that details
disclosure of compensation and remuneration for each of the following, EXCEPT:
(a) The chairman and each member of the Board of Directors.
(b) The top five executives who received the highest remuneration.
(c) The CEO, if he/she is not in the top five with the highest remuneration.
(d) The Compliance Officer, if he/she is not in the top five with the highest
remuneration.

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 End of Chapter Review Questions: Key Answers

Chapter 1: Capital Market Law

1- B
2- D
3- A
4- B
5- C

Chapter 2: Market Conduct Regulations

1- B
2- D
3- C
4- C
5- D

Chapter 3: Offer of Security Regulations

1- D
2- D
3- C

Chapter 4: Listing Rules

1- D
2- D
3- B
4- A
5- D
6- B
7- C

Chapter 5: Securities Business Regulations

1- B
2- D
3- B
4- B

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Chapter 6: Authorized Persons Regulations

1- B
2- D
3- C

Chapter 7: Investment Funds and Real Estate Investment Funds Regulations

1- B
2- D
3- A
4- D
5- C

Chapter 8: Mergers & Acquisitions Regulations

1- D
2- C

Chapter 9: AML & Counter Terrorist Financing Rules

1- D
2- B
3- C
4- A

Chapter 10: Corporate Governance Regulations

1- D
2- B
3- D

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 SYLLABUS LEARNING MAP

PART 1 - Regulations
ELEMENT 1 CAPITAL MARKET LAW Chapter/section

1.1 Securities

On completion, the candidate should :

1.1.1 Know the types of instruments specifically covered by the Ch1, Section 1.1.1
CML and referred to as ‘securities’ therein (Chapter 1,
Article 2)

1.1.2 Know the types of instruments specifically excluded from the Ch1, Section 1.1.2
definition of ‘securities’ and therefore not covered by the
CML (Chapter 1, Article 3)

1.2 The Capital Market Authority

On completion, the candidate should:

1.2.1 Understand the extent of the Authority’s responsibilities Ch1, Section 1.2.1
under the CML and the functions that it may employ to
achieve those objectives (Chapter 2, Article 5)

1.3 Other Saudi Arabian Entities

On completion, the candidate should :

1.3.1 Know the objective of the Exchange (Chapter 3, Article 20) Ch1, Section 1.3.1

1.3.2 Understand the functionality of the Committee for the Ch1, Section 1.3.2
Resolution of Securities Disputes (Chapter 3, Article 25)

1.3.3 Understand the functionality of the Securities Depository Ch1, Section 1.3.3
Center (Chapter 4, Article 27 & 27)

1.3.4 Know what action may be taken by the Center in the event of Ch1, Section 1.3.3
an error in, or any doubt over, the information held by the
Center (Chapter 4, Article 27)

1.4 Broker Regulation

On completion, the candidate should:

1.4.1 Know the requirements of a person wishing to undertake Ch1, Section 1.4.1
brokerage business (Chapter 5, Article 31 & 32)

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 1.4.2 Know the activities that may be carried on by a Broker Ch1, Section 1.4.2
(Chapter 5, Article 32)

1.4.3 Understand the Exchange’s power to carry out investigations Ch1, Section 1.4.3
and inspections of licensed brokers or brokers’ agents
(Chapter 5, Article 35)

1.5 Investment Funds And Collective Investment Schemes

On completion, the candidate should:

1.5 Know the Authority’s powers of regulation and control over Ch1, Section 1.5
Investment Funds and Collective Investment Schemes
(Chapter 6, Article 39)

1.6 Disclosure

On completion, the candidate should :

1.6.1 Know what information and statements must be contained in Ch1, Section 1.6.1
prospectus relating to the issue of securities (Chapter 7,
Article 42)

1.7 Regulation of Restricted Purchases And Restricted Offers

On completion, the candidate should:

1.7.1 Understand what is meant by a Restricted Purchase of Shares Ch1, Section 1.7.1
(Chapter 9, Article 52 & 54)

1.7.2 Understand what is meant by a Restricted Offer for Shares Ch1, Section 1.7.1
(Chapter 9, Article 52 & 54)

1.8 Sanctions And Penalties For Violations (General)

On completion, the candidate should :

1.8 Know the Sanctions that can be issued by the Committee for Ch1, Section 1.8
the resolution of securities disputes for violations of any
provisions of the law, regulations, rules and regulations of
the Exchange (Chapter 10, Article 59)

ELEMENT 2 MARKET CONDUCT REGULATIONS Chapter/section

2.1 Prohibition of Market Manipulation

On completion, the candidate should :

138
 2.1.1 Understand the regulation concerning the prohibition of Ch2, Section 2.1.1
Market Manipulation and deceptive act of practices

 Reasonable ground to know

 False or misleading impression

 Artificial prices

(Part 2, Article 2)

2.1.2 Understand the nature of activities that may be considered to Ch2, Section 2.1
be Market Manipulation or deceptive act or practices

 Fictitious trades

 No change in beneficial ownership

 Matching purchase and sale transactions

 Escalating / Diminishing price orders

 Orders to manipulate prices

(Part 2, Article 3)

2.2 Insider Trading

On completion, the candidate should :

2.2.1 Understand the concept of trading in a Security as it is stated Ch2, Section 2.2.1
in the market conduct regulations

 Trading Security

 Price affected by information

 Direct Trading

 Indirect Trading

(Part 3, Article 4a)

2.2.2 Understand what is meant by ‘Insider’ for the purposes of the Ch2, Section 2.2.2
insider ‘Trading Regulations (Part 3, Article 4b)

2.2.3 Understand what is meant by ‘Insider Information’ for the Ch2, Section 2.2.3
purpose of the insider Trading Regulations (Part 3, Article

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 4c)

2.2.4 Understand the regulations covering the disclosure of Insider Ch2, Section 2.2.4
information and the prohibition of Insider Trading (Part 3,
Article 5 & 6)

2.3 Untrue Statements

On completion, the candidate should :

2.3.1 Understand the regulations concerning the prohibition of Ch2, Section 2.3.1
Untrue statements (Part 4, Articles 7 & 8)

2.3.2 Know the circumstances in which a person may make an Ch2, Section 2.3.2
Untrue Statements (Part 4, Article 9)

2.3.3 Understand the circumstance under which a person may be Ch2, Section 2.3.3
liable for damages in respect of the making of an Untrue
Statement (pat 4, Article 10)

ELEMENT 3 OFFER OF SECURITY REGULATIONS Chapter/section

3.1 The Parties

On completion, the candidate should :

3.1.1 Know the definition of an ‘Offeror’ and an ‘Offeree’ in Ch3, Section 3.1.1
respect of Offers of Securities under the Offers of Securities
Regulations (Part 2, Article 4 & 5)

3.2 Private Placements

On completion, the candidate should:

3.2.1 Know the conditions that must be fulfilled if an Offer of Ch3, Section 3.2.1
Securities is to be regarded as a private placement (Part 4,
Article 9)

3.2.2 Know the restriction on Secondary Market activity in respect Ch3, Section 3.2.2
of Securities acquired pursuant to a private placement (Part 4,
Article 15)

ELEMENT 4 LISTING RULES Chapter/section

4.1 Issuer’s Representative And Financial Advisor

On completion, the candidate should:

140
 4.1.1 Know the requirement for an issuer to appoint a Ch4, Section 4.1.1
representative to act on its behalf before the Authority (Part 1,
Article 3)

4.1.2 Know the requirement to appoint a financial advisor, its Ch4, Section 4.1.2
obligations and duty of care (Part 1, Article 4, 6 & 7)

4.2 Conditions For Admission and Listing

On completion, the candidate should :

4.2.1 Know the conditions relating to applicant for admission and Ch4, Section 4.2.1
listing (Part 3, Article 8)

4.2.2 Know the conditions relating to securities to be admitted and Ch4, Section 4.2.2
listed (Part 3, Article 9)

4.3 Admission To The Official List

On completion, the candidate should be:

4.3.1 Know the requirement for the issue to be underwritten and the Ch4, Section 4.3.1
capital requirements of the underwriter (Part 4, Article 10)

4.3.2 Know the basic contents of the prospectus Ch4, Section 4.3.2

4.4.3 Know the circumstances under which the Authority may Ch4, Section 4.3.3
cancel or suspend a listing

ELEMENT 5 SECURITY BUSINESS REGULATIONS Chapter/section

5.1 Carrying On Securities Business

On completion, the candidate should :

5.1.1 Understand the five Securities activities that constitute Ch5, Section 5.1.1
Security Business (Part 2, Article 2 & 3)

5.1.2 Understand the criteria present if a person is to be regarded as Ch5, Section 5.1.2
carrying on Security Business in the Kingdom of Saudi Arabia
(Part 2, Article 4)

5.1.3 Understand The categories of Persons who may carry on Ch5, Section 5.1.3
Securities Business in the Kingdom of Saudi Arabia (Part 2,
Article 5 annex 1)

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 5.2 Exclusions From Authorization

On completion, the candidate should:

5.2.1 Know the Securities activities that do not require authorization Ch5, Section 5.2.1
by the Authority (Part 2, Article 7 to 10)

5.3 Securities Advertisements

On completion, the candidate should :

5.3.1 Understand the criteria that must be present for a Ch5, Section 5.3.1
communication to be regarded as a Securities Advertisement
(Part 3, Article 16)

5.3.2 Know the Authorized Person’s role in the making of Ch5, Section 5.3.2
communicating of Securities Advertisements (Part 3, Article
17)

5.3.3 Know the exemptions from the Regulation of Securities Ch5, Section 5.3.3
Advertising (Part 3, Article 20)

5.3.4 Know the Territorial scope of a Securities Advertisement (Part Ch5, Section 5.3.4
3, Article 19)

ELEMENT 6 AUTHORIZED PERSONS REGULATIONS Chapter/section

6.1 The Principles

On completion, the candidate should:

6.1.1 Know the Principles that provide a general statement of the Ch6, Section 6.1.1
fundamental obligations of Authorized Persons

6.2 Authorization

On completion, the candidate should:

6.2.1 Know the requirements that an applicant must fulfill when Ch6, Section 6.2.1
applying for an authorization to conduct investment business

6.2.2 Know the criteria against which an Authorized Person’s Ch6, Section 6.2.2
employees, officers and agents will be assessed in determining
whether the Authorized Person is Fit and Proper to carry out
the Securities Business for Which it is authorized (Part 3,
Article 9)

6.2.3 Know the record keeping requirements applicable to an Ch6, Section 6.2.3

142
 Authorized Person (Part 3, Article 16)

6.3 Registered Persons

On completion, the candidate should:

6.3.1 Know the Registerable Functions that shall be performed by Ch6, Section 6.3.1
Registered Persons (Part 4 Article 19)

6.4 Conduct of Business

On completion, the candidate should:

6.4.1 Understand the limitations on the giving and receipt of gifts or Ch6, Section 6.4.1
inducements (Part 5, Article 27)

6.4.2 Understand the circumstances in which an Authorized Person Ch6, Section 6.4.2
may enter into a special commission arrangement (Part 5,
Article 28)

6.4.3 Understand the exceptions to the Authorized Person’s duty of Ch6, Section 6.4.3
confidentiality in respect of client information (Part 5, Article
29)

6.4.4 Understand the characteristics and uses or Chinese Wall Ch6, Section 6.4.4
Arrangements (Part 5, Article 300

6.5 Accepting Clients

On completion, the candidate should :

6.5.1 Understand the three different types of client Ch6, Section 6.5.1

6.5.2 Know that an Authorized Person must comply with all Ch6, Section 6.5.2
obligations under the Anti – Money Laundering Law and
associated rules and regulations (Part 5, Article 37

6.5.3 Know the requirement that an Authorized Person must Ch6, Section 6.5.3
provide a client with its terms of business; the basic purpose
of so doing and its record keeping requirements (Part 5,
Article 38)

6.5.4 Know the requirement to Know Your Customer and basic Ch6, Section 6.5.4
details of the information that should be retained (Part 5,
Article 39)

6.6 Client Relations

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On completion, the candidate should:

6.6.1 Know basic details of the fiduciary duties that an Authorized Ch6, Section 6.6.1
person owes to its customers (Part 5, Article 40 & Annex 5.4)

6.6.2 Understand an Authorized Person’s responsibilities regarding Ch6, Section 6.6.2

any conflict of interest between itself and its customer (Part 5,
Article 41)

6.6.3 Understand the restrictions placed on an Authorized Person’s Ch6, Section 6.6.3
dealings with its customers when undertaking activities that
involve risk,(Part 5, Article 42)

6.6.4 Understand the Regulations regarding the Suitability of advice Ch6, Section 6.6.4
or a transaction for a customer (Part 5, Article 43)

6.6.5 Understand the circumstances under which an Authorized Ch6, Section 6.6.5
Person may lend money or extend credit to a customer (Part 5,
Article 44)

6.6.6 Understand the circumstances and conditions under which an Ch6, Section 6.6.6
Authorized Person may effect a margined transaction or the
granting of a loan or credit to cover margin payments (Part 5,
Article 45)

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 6.7 Reporting To Clients

On completion, the candidate should:

6.7.1 Know the requirement that an Authorized person must send a Ch6, Section 6.7.1
contract note when it has effected a sale or purchase of a
Security for a customer (Part 5, Article 47)

6.7.2 Know the requirement that an Authorized Person who acts as Ch6, Section 6.7.2
manager for a client must send periodic valuations to that
client (Part 5, Article 48)

6.7.3 Understand the record keeping requirement in respect of Ch6, Section 6.7.3
transactions effected by an Authorized Person for its clients
and its clients’ accounts (Part 5, Article 49)

6.7.4 Understand the regulations regarding Employees’ Personal Ch6, Section 6.7.4
Dealings as they affect the employee and the Authorized
person (Part 5, Article 50)

6.7.5 Know an Authorized Person’s obligations if it wished to make Ch6, Section 6.7.5
or accept telephone communications to or from its client in
relation to Securities Business (Part 5, Article 51)

ELEMENT 7 INVESTMENT FUND AND REAL ESTATE INVESTMENT Chapter/section

FUNDS REGULATIONS

7.1 Offer of Investment Fund Units

On completion, the candidate should:

7.1.1 Understand the process of issuing units of investments funds Ch7, Section 7.1.1
by way of private placement (Part 2, Article 4)

7.1.2 Understand the various requirement of public offer of units of Ch7, Section 7.1.2
investment funds (Part 2, Article 5)

7.2 Procedures And Powers of The Authority In Relation To An

Application

On completion, the candidate should:

7.2 Understand the steps and procedures the Capital Market Ch7, Section 7.2
empowered to take in considering an application to offer units
in an investment funds (Part 2, Article 6)

7.3 Procedures And Powers of The Authority In Relation To An

145
 Application

On completion, the candidate should:

7.3 Understand the reporting requirements by the fund manager to Ch7, Section 7.3
investment fund unit holders (Part 3, Article 12)

7.4 Pricing, Valuation And Redemption

On completion, the candidate should:

7.4 Understand the pricing, valuation and redemption of open – Ch7, Section 7.4
end investment (Part 9, Article 46)

7.5 Authorization Requirements of Real Estate Investment Funds

On completion, the candidate should:

7.5 Understand the requirements that have to be met by the Ch7, Section 7.5
applicant seeking the Capital Market Authority Approval to
offer units for a real estate investment fund (Part 1, Article 3)

7.6 Procedures And Powers of The Authority In Relation To An

Application

On completion, the candidate should:

7.6 Understand the steps and process followed by the Capital Ch7, Section 7.6
Market Authority in considering application to offer units in
real estate investment funds (Part1, Article 4)

7.7 Valuation of Real Estate Fund Assets

On completion, the candidate should:

7.7 Understand the requirements as to the valuation of real estate Ch7, Section 7.7
assets (Part 3, Article 21)

7.8 Presenting Reports To Unit Holders

On completion, the candidate should:

7.8 Understand the reporting requirement by the fund manager to Ch7, Section 7.8
funds’ unit holder (Part 3, Article 21)

ELEMENT 8 MERGERS AND ACQUSITIONS REGULATIONS Chapter/section

146
 8.1 General Principles

On completion, the candidate should:

8.1 Understand the general principles underlying mergers and Ch8, Section 8.1
acquisition in the Saudi Market (Part 1, Article 3)

8.2 Rules of Offers

On completion, the candidate should:

8.2 Understand the rules that govern the initial steps of an offer Ch8, Section 8.2
(Part2, Article 51)

8.3 Announcement And Takeover Timetable

On completion, the candidate should:

8.3 Understand the situations where a public announcement Ch8, Section 8.3
related to takeover is required (Part2, Article 17-a)

8.4 Responsibilities of Offeror And The Offeree Company

On completion, the candidate should:

8.4 Understand the responsibilities under the mergers and Ch8, Section 8.4
acquisitions regulations of the offeror and offeree Companies
(Part2,Article 6-c)

ELEMENT 9 ANTI – MONEY LAUNDERING AND COUNTER TERRORIST Chapter/section

FINANCING

9.1 Objective of The Anti – Money Laundering (AML) And Counter

Terrorist Financing (CTF) Rules

On completion, the candidate should:

9.1 Understand the objectives of Anti – Money Laundering Ch9, Section 9.1
(AML) and Counter Terrorism Financing (CTF) rules (Part 1,
Article 1)

9.2 Definitions

On completion, the candidate should:

9.2 Know the definition of Money Laundering and Terrorism Ch9, Section 9.2
Financing (Part 1, Article 2)

9.3 General Application of (AML / CTF) Requirements

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On completion, the candidate should:

9.3 Understand the general requirements of AML / CFT rules Ch9, Section 9.3
(Part 1, Article 3)

9.4 Application of Policies And Procedures To Overseas Branches And

Subsidiaries

On completion, the candidate should:

9.4 Understand the AML / CTF requirements with respect to Ch9, Section 9.4
overseas branches and subsidiaries (Part 2, Article 4)

9.5 Customer Due Diligence

On completion, the candidate should:

9.5.1 Understand the requirements of developing client acceptance Ch9, Section 9.5.1
policies and procedures by Aps (Part 3, Article 7)

9.5.2 Understand the requirements that clients be identified and Ch9, Section 9.5.2
verified by Authorized Persons (Part 3, Article 8)

9.5.3 Understand the factors that lead to reduced or enhanced Ch9, Section 9.5.3
customer due diligence requirements by the Authorized
Persons (Part 3, Article 9)

9.5.4 Know the clients which are considered high risk under the Ch9, Section 9.5.4
rules (Part 3, Article 10-11)

9.5.5 Know the situations where Authorized persons must carry out Ch9, Section 9.5.4
Customer Due Diligence (Part 3, Article 12)

9.6 Cases When Verification Are Not Needed

On completion, the candidate should:

9.6 Know the cases where identification and verification are not Ch9, Section 9.6
required by the Authorized Persons (Part 3, Articles 13-14)

ELEMENT 11 CORPORATE GOVERNANCE REGULATIONS Chapter/section

10.1 Rights of Shareholders And The General Assembly

On completion, the candidate should:

10.1.1 Understand the rights of shareholders of listed companies in Ch10, Section 10.1.1
the Saudi Market (Part 2, chapter 1,Article 5)

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 10.1.2 Understand the rights of shareholders and the rules governing Ch10, Section 10.1.2
general assemblies of listed companies in the Saudi Market
(Part 2, Chapter 2, Article 5)

10.1.3 Understand management of the shareholders’ assembly of Ch10, Section 10.1.3

joint stock listed companies in Saudi Arabia (Part 2, Chapter
2, Article 13)

10.1.4 Understand the rights of shareholders of joint stock listed Ch10, Section 10.1.4
companies in Saudi Arabia related to the distribution of
dividends (Part 2, Chapter 1, Article 9)

10.2 Disclosure And Transparency

On completion, the candidate should:

10.2 Understand the disclosure rights of shareholders of joint stock Ch10, Section 10.2
listed companies in Saudi Arabia (Part 9, Articles
89,90,91,92, and 93)

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