From Access Reform to Liquidity Incentives
On 1 February 2026, the Capital Market Authority (CMA) abolished the Qualified Foreign Investor regime. It removed asset thresholds and experience requirements that had limited direct foreign access to Saudi-listed securities. Foreign institutions can now invest on Tadawul without the previous QFI approval process. This aligns access rules more closely with other major emerging markets.
Four days later, on 5 February 2026, the Saudi Exchange announced a dedicated ETF Market Making Framework. The scheme offers licensed brokerage firms and investment banks a full daily waiver of trading, clearing, depository and regulatory fees on eligible ETF market-making activity. Firms must meet obligations on maximum spreads, minimum quote size and quote presence during the trading day.
The framework aims to improve on-screen liquidity, narrow bid-offer spreads and support more efficient price discovery for Saudi-listed ETFs. By lowering frictional costs for liquidity providers, the exchange is trying to make continuous quoting commercially viable. It also aims to attract a broader pool of market makers.
These steps come as the Saudi ETF market scales up from a low base. According to Tadawul data, Saudi Arabia’s weight in the MSCI Emerging Markets Index rose from about 1.4% at entry in 2019 to more than 4% by April 2025. This reinforces demand for efficient index-tracking tools. ETF assets on the Saudi Exchange have grown from about $410 million in 2022 to more than $2 billion by mid-2025. That fivefold increase signals real momentum, even if the absolute size remains modest.
Regulators are positioning ETFs as a key channel for global investors who want broad Saudi exposure without picking single stocks. The removal of QFI constraints removes a structural barrier. The new framework aligns incentives along the trading chain, from sponsors to brokers and market makers.
The Path to a Self-Sustaining Ecosystem
Despite recent growth, scale remains the central challenge. Analysis of fee structures and typical emerging market ETF trading patterns suggests that a single Saudi ETF needs around SAR 1.5–3.0 billion in assets under management. Below that level, a market maker cannot sustain tight, continuous quotes without external support. Average fund size on Tadawul is still well below this threshold.
As of May 2026, 13 ETFs trade on the Saudi Exchange with total market assets of roughly SAR 7.5 billion (about $2 billion). For the ETF ecosystem as a whole to become commercially self-sustaining across its listed products, total assets likely need to reach around SAR 20–40 billion. That implies a three- to five-fold expansion from current levels.
The fee waivers are therefore less an end state than a bridge. They offset the economics of providing liquidity in relatively small funds. They also give sponsors time to seed new products, educate domestic investors and build institutional mandates. Over time, as assets grow and trading volumes normalise, the authorities can scale back support and allow spreads and fee structures to reflect true market demand.
Meanwhile, product development is catching up. Recent listings such as the Albilad MSCI Saudi Equity ETF offer exposure to more than 250 companies across Tadawul’s main and Nomu markets. They show how local managers are using ETFs to package diversified Saudi exposure for both domestic and foreign buyers. The combination of broader access, more competitive liquidity provision and an expanding product range aligns closely with the Kingdom’s Vision 2030 goal of deeper, more diversified capital markets.
For investors, the reforms signal that Riyadh wants ETFs to move from niche status to a mainstream access route. The key variables to watch now are asset growth across the Saudi ETF market, the pace of new listings in both plain-vanilla and thematic strategies, and any future adjustments to market-making incentives as the segment approaches the scale it needs to stand on its own. Further detail on the regulatory backdrop is available via Argaam’s coverage of the CMA reforms.
