The Kingdom of Saudi Arabia opened its stock market to foreign investors on Monday. However, the Kingdom placed some restrictions to keep out small investors.

Saudi Arabia Stock Market Is Now Open To Foreign Investors

The Saudi Stock Exchange or Tadawul is the largest stock market in the Middle East, which is valued at approximately $585 billion. CNN Money noted that only the biggest financial institutions such as banks, brokers, and fund managers were allowed to trade on Tadawul.

The Saudi Arabia Stock Exchange opened to foreign investment for the first time amid the low oil prices and the increasingly aggressive and costly foreign policy of the Kingdom.

Saudi Arabia required foreign investors to register

Foreign investors will not be able to invest immediately in the Saudi Stock Exchange because they are required to register first with the Kingdom’s Capital Markets Authority. Foreign investors must have more than $5 billion in assets and over five years of investment experience to be considered for approval.

Saud Arabia restricts approved foreign investors from owning more than 49% of any publicly-traded company in the country.

Foreign investors who cannot register as “Qualified Foreign Investors” could invest through a swap agreement program. However, they will not be granted with regular shareholder rights and voting rights.

DMS Funds Chief Investment Officer Peter Kohli told CNN Money that he had no intention to invest in Saudi Arabia because of the restrictions. He said, “When I was told, I was locked out of the market, I really didn’t look [to invest] because, what’s the point?”

Saudi Arabia is looking for activist investors

In an interview with CNBC, Adel Saleh Al-Ghamdi, the CEO of Saudi Arabia Stock Exchange said the Kingdom’s intention was to modernize the capital markets instead of raising funds.

“The reason is not really about raising further funds for Saudi Arabia—I mean we have a lot of liquidity—but it is these qualitative influences that we are looking for, that we hope will help to develop our capital markets,”said Al-Ghamdi.

He added that the Saudi Arabia is looking for “long-terms investors who take an active role in shaping the direction of the companies that they invest in.”

Furthermore, Al-Ghamdi said, “These activist shareholders are basically there to allow us to better align with best global practices and hopefully that will accelerate our convergence to higher standards of corporate governance, investor relations, issuer disclosures, and hopefully broaden and make more sophisticated our research coverage of our listed companies.”

Oliver Bell, a manager of the T. Rowe Price Africa and Middle East Fund, described the opening of the Saudi Arabia Stock Exchange as “an exciting development” because of the size and depth of the market.

In a note to investors, Bell wrote, “A further attraction for global investors is the liquidity of the market, which can trade up to $4 billion a day.”

John Sfakiankis, director at Ashmore Group, an emerging markets investment firm, said he does not expect a huge influx of foreign investment to the Saudi Stock Exchange immediately. He said a gradual flow of foreign investment would happen over the next several years, around $20 billion to $25 billion.