HSBC Holdings has received a qualified foreign investor licence in Saudi Arabia and traded shares on the bourse yesterday (June 15), the first day that direct foreign investment was allowed, the bank said.

Saudi Arabia’s Capital Market Authority has not yet announced any licence awards, but stock exchange chief executive Adel Al Ghamdi said the first transaction by a qualified foreign investor was due to take place yesterday. He did not name the investor, reported the Gulf Daily News (GDN), our sister publication.

“Today marks one of the most important moments in the history of Saudi financial markets and HSBC is pleased to have played a role in supporting their development,” HSBC said yesterday.

Previously, foreigners could only buy stocks in the $564 billion market, the largest in the Arab world, indirectly through channels such as swaps. Riyadh is opening the market as a way to expose companies to market discipline and diversify its economy beyond oil.

Two sources familiar with the matter said HSBC was the first institution to get a foreign investor licence and was trading with the identity code of 0001, supporting the idea it had received the first licence.

One of the sources added it had traded in blue-chip stocks, without detailing which ones or the size of the trades.

Al Ghamdi also said regulators were processing six applications from “very large institutions” and “there might be a spike of involvement from foreign investors over the next two or three months”.

Al Ghamdi said he expected a flurry of licences allowing the first foreign investors to buy shares in coming weeks.

He said the first ‘qualified investor licence’ should be awarded straight away and rules for foreign investors should evolve with time.

The Saudi market regulator has said foreign institutions can buy stocks directly from yesterday, but it has not so far announced the award of any licences permitting them to do so.

The stock exchange is one of the last major bourses world wide to open to foreigners. It is one of the most hotly anticipated reforms in the region for years and carries similarities to recent changes in China’s stock markets.

It features the world’s largest chemicals producer, Saudi Basic Industries Corporation, and Saudi Telecom Company, the Gulf’s biggest telecoms operator.

But regulatory obstacles and uncertainty about the size of fund inflows have deterred foreign firms from piling in. One restriction, criticised by fund managers, limits foreigners to owning a maximum of 10 per cent of the market by value.

Language has been another barrier. Only around 45pc of company announcements in the Saudi market are in English as well as Arabic which makes it tricky for some outside investors.

“This is a start of the framework, this is certainly not the end,” Al Ghamdi said. - TradeArabia News Service