Saudi Arabia has set no limit on the number of shares which non-resident investors can own in listed firms under groundbreaking new guidelines it issued last week that opened the door to foreign buyers.

The Capital Market Authority (CMA) last week said foreign investors were allowed to sign swap agreements with Saudi intermediaries, allowing a form of indirect ownership of the shares, in one of the boldest moves the kingdom has taken so far to open its stock exchange to foreign ownership.

But the CMA, which took the step to diversify the investor base of the Gulf region's worst-performing benchmark this year, did not publish detailed rules to govern these agreements, leaving many investors guessing how they might be implemented.

The regulator has now sent a memo to Saudi brokerage and asset management firms outlining 11 guidelines for these agreements, senior brokerage and asset management executives said.

CMA's website did not carry these regulations and spokesman Abdulaziz Alzoom declined comment.

"With these regulations, CMA has struck a balance ... We are not in China and we are not in India either. We are not too stringent, nor too flexible. We have a balanced set of regulations for these swap agreements," said Fahad al-Mubarak, chairman of Morgan Stanley Saudi Arabia.

His firm was the first to sign up a foreign investor under a swap agreement which he said will be for one stock.

The regulations capped at four years the duration of swap agreements but did not set a minimum maturity duration.

"These agreements can be renewed once the four years come to maturity. They did not set a minimum because they wanted to offer flexibility," Al-Mubarak said.

CMA did not set limits on the number of shares foreign investors can own through these agreements.

"Executing a single swap is a costly proposition, so foreign investors will not enter an agreement for a small quantity of shares," Al-Mubarak said.

The CMA memo said licensed intermediaries must avoid credit risks that may arise from swap agreements which must be paid for in full and that intermediaries must ensure regulations for swap agreements are met.

"CMA wants these swap agreements to be fully covered to prevent intermediaries from taking financial risk by either buying more or less shares than what a foreign investor can actually pay for," said Ibrahim al-Alwan, deputy chief executive of KSB Capital investment bank.

Long dominated by day traders, the Saudi stock market has been trying to improve transparency and gain more institutional investors since a market crash in 2006, when the index crashed 64 percent from peak to trough that year.

The kingdom's market has been the least open among Gulf Arab bourses to foreign investors, up to now giving non-resident foreigners access to stocks only through select funds.

The new foreign ownership rule came one week after Saudi Arabia's market operator Tadawul implemented a transparency rule whereby the exchange names investors with stakes of 5 percent or more in listed firms.

"Swap agreements are usually less attractive than direct ownership since foreign investors have no control. But these agreements have opened a window. We had a near-zero percent entry of foreign investors, now we are 20 percent open," Alwan said. - Reuters