CME-1B Capital Market Rules Complete Review Guide 2026–2027

4. An investment fund is a collective investment scheme that lets investors share in its profits collectively and is run by a fund manager for specified fees; the fund manager is responsible for managing its assets and business and offering its units, and must act in the interest of unitholders (Investment Funds Regulations, Article 9) (4.2.1).
5. A public fund is established by signing the terms and conditions between the first potential unitholders and the fund manager (Article 34), and is supervised by a fund board of at least three directors, of whom at least two or one third, whichever is greater, are independent (Article 39). The fund board's duties include approving material contracts, decisions and reports and a voting rights policy, overseeing conflicts of interest, meeting at least twice a year with the manager's compliance committee or officer, and confirming that the terms and conditions are complete and accurate (Article 40) (4.2.4).
6. The custodian is appointed in the Kingdom under a written contract, must be a capital market institution licensed for custody and may not be the fund manager or its affiliate, and remains liable to the manager and unitholders for losses from its fraud, negligence, misconduct or wilful default (Articles 25 and 29); the fund operator is responsible for operating the fund (Article 9(d)) (4.2.4).
7. An independent auditor registered with the Authority is appointed before a public fund is established; if nine months have passed since establishment before the fiscal year end the audit is due at the end of the first fiscal year, otherwise it may be done at the end of the second; fees are set with the fund board's approval (Article 76) (4.2.4).
8. Fund classification: by client, public fund and private fund; by capital, open-ended fund whose capital changes with issues and redemptions and closed-ended fund, which is any fund not open-ended; by objective, specialised public fund and non-specialised public fund. There are five specialised public funds: money market fund, feeder fund, fund of funds, capital protected fund and endowment fund (Article 55) (4.2.3).
9. Traded funds are the ETF, the closed-ended investment traded fund and the traded real estate investment fund (REIT); a person buying a unit on the Exchange is deemed to have read and accepted the terms and conditions (Articles 48 and 49). Conditions for a traded REIT (Real Estate Investment Funds Regulations, Article 47): a closed-ended fund with assets of at least SAR 500 million for the Main Market and SAR 100 million for the Parallel Market, a nominal unit value of SAR 10, at least 75% invested in developed, income-generating real estate, and distributions of at least 90% of net profits annually (4.2.3).
10. The prospectus is submitted to the Authority, published and its fees paid before the offer (Capital Market Law, Article 40), and contains a description of the issuer, its business, management and major shareholders, a description of the securities, their number, price and rights, use of proceeds and commissions, and the financial position with an audited balance sheet, profit and loss account and cash flow statement (Article 42) (4.3.1).
11. Every issuer offering securities to the public or traded on the Exchange files quarterly and annual reports with the Authority covering the balance sheet, profit and loss account and cash flow statement, annual reports are audited, and the issuer notifies the Authority of any change to the prospectus that may affect the price or value of the security (Articles 43 and 45) (4.3.2).
12. An exempt offer falls outside the Rules, for example securities issued by the government (Article 6); a private placement is limited to institutional and qualified clients or is a limited offer, and is made through a capital market institution licensed for arranging with notice to the Authority 10 days ahead (Articles 8 and 10) (4.4.1).
13. A public offer is open to all investors and requires prior arrangements for listing on the Exchange (Articles 15 and 16); a limited offer has no more than 100 offerees (not counting institutional and qualified clients) and SAR 200,000 each; a Parallel Market offer is limited to categories of qualified investors (Article 74) (4.4.1).
14. The issuer's two representatives before the Authority are a director and a senior executive, with contact details provided in writing; for a special purposes entity the entity's representatives come from its board and the sponsor's are a board member and a senior executive (Article 18). The financial advisor is authorised for arranging and is the Authority's main point of contact, checks through due diligence that the issuer has met the conditions, provides what the Authority asks for and reports new matters until the offer completes (Article 21); the legal advisor is licensed to practise law in the Kingdom (Article 22) (4.6.1 and 4.6.2).
15. A special purposes entity is an entity established and licensed by the Authority to issue debt instruments or investment units, with legal personality and financial autonomy, ending when its purpose ends; its purposes are financing other than bank loans, giving the issue to a separate entity, giving the fund legal personality, and protecting investors from the bankruptcy of related parties (Rules for Special Purposes Entities, Articles 46 and 55) (4.7.1).
16. Debt instruments issued by SPEs: asset-backed (return wholly depends on the SPE's asset returns and the sponsor is not obliged to pay), asset-linked recourse (return is a ratio of the asset returns and the sponsor must pay all amounts due), and debt-based recourse (return does not depend on asset returns, the sponsor must pay, and par value is paid at or before maturity) (4.7.1).
17. A listed company shareholder's rights (Corporate Governance Regulations, Article 5): a share of profits distributed in cash or shares, a share of assets on liquidation, attending assemblies and voting, disposing of shares, viewing books and documents, holding board members accountable and filing liability suits, pre-emptive rights for new shares issued for cash, being recorded in the shareholders register, and nominating and electing board members (4.8.1).
18. The ordinary general assembly handles what is not reserved for the extraordinary one, including electing and removing board members, permitting a board member's direct or indirect interest, appointing the external auditor and setting fees, deciding profit distribution, and approving the sale of more than 50% of the company's assets (Article 12); the extraordinary general assembly handles amending the bylaws, increasing and decreasing capital, share buy-backs, issuing preferred shares or convertible debt instruments and suspending pre-emptive rights (Article 11) (4.8.2).

Common mistakes in this chapter

• ✕ Mixing up the 11 principles (Article 5) with the four fiduciary duties (Annex 5.4): the principles are a general statement of conduct, while the fiduciary duties are owed to the client.
• ✕ Thinking that no secret profits bans any use of the client's assets or information: it is allowed after full disclosure and the client's consent.
• ✕ Mixing up the roles of fund parties: the manager manages and offers, the operator operates, values and prices, the fund board supervises the manager, the custodian holds the assets, and the auditor is independent and registered with the Authority.
• ✕ Assuming delegation frees the delegator: the fund manager and the custodian stay responsible for compliance with the Investment Funds Regulations and for losses from fraud, negligence, misconduct and wilful default.
• ✕ Defining a closed-ended fund as one with fixed units: it is any fund that is not open-ended, and an open-ended fund is one whose capital changes as new units are issued and unitholders redeem.
• ✕ Confusing a private placement with a limited offer: a limited offer is one kind of private placement, with at most 100 offerees, at most SAR 200,000 each, and no repeat for the same class within 12 months (Article 9).
• ✕ Mixing up the debt instrument types: for asset-backed the sponsor owes holders nothing, for asset-linked and debt-based recourse the sponsor must pay all amounts due, and for debt-based recourse the return does not depend on the SPE's asset returns.
• ✕ Mixing up the general assembly numbers: notice at least 21 days ahead, the annual ordinary assembly within six months of the financial year end, and the assembly called within 30 days of a request from the auditor, the audit committee or shareholders holding at least 10% of voting shares.