CONSULTATION ON A MARKET
RECLASSIFICATION PROPOSALFOR THE MSCI SAUDI ARABIA
INDEXPotential Reclassification from Standalone toEmerging MarketsFebruary 2018

© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

RECLASSIFICATION PROPOSAL• MSCI proposes to reclassify the MSCI Saudi Arabia Index from Standalone
Market to Emerging Markets status
─ The proposed reclassification would be reflected in all relevant global
and regional composite indexes─ The proposal is to implement the potential reclassification in two steps
coinciding with the May 2019 Semi‐Annual and the August 2019
Quarterly Index Reviews• MSCI will consult with market participants on this reclassification
proposal as part of the 2018 Annual Market Classification Review
─ MSCI will announce its decision in June 2018
• Please note that this proposal may or may not lead to any changes to theMSCI Indexes

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BACKGROUND•The Saudi Arabia equity market opened up to foreign direct investments in June 2015
through a Qualified Foreign Investor (QFI) program•Since September 2016, a number of positive market reforms were implemented. Changes
include among others:Foreign Ownership Limits

Current situation

20% limit applicable to QFIs

49% limit applicable to all foreign investors
Sep. 2016 (QFI rules version 2)(including QFIs)• Reduction in the minimum AuM for QFIs from USD 5B to USD 500M

QFI registration rules• New eligible QFIs (e.g. sovereign wealth funds and university endowments)• Improvements in registration process and process for applying for QFI license

Clearing and settlement

Securities lending /Short selling

Implementation date of thechanges

Previous situation

Sep. 2016 / Jan. 2018 (QFI rules
versions 2 and 3)*• T+0 settlement cycle• T+2 settlement cycle• No DVP model• DVP model with fail trade management• Cash pre-funding• No cash pre-funding• Omnibus facilities not available• «Omnibus like» facilities available

Jan. 2018 (amended Market
Conduct Regulations)Not allowed

AllowedApr. 2017 (Tadawul's newoperating model)

Apr. 2017 (Tadawul's newoperating model)* The 3rd version of the QFI rules (Jan 2018) includes a significant reduction in the number of qualification requirements and a significant improvement in the registrationprocess and the process for applying for a QFI license.

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MARKET ACCESSIBILITY REVIEW 2017Market Accessibility Assessment

SAOpenness to foreign ownership

Investor Qualification Requirement: The QFI program is open to
selected types of investors with appropriate size and with sufficient
track records. Investors from GCC countries are not subject to any
qualification requirements.

Investor qualification requirement+Foreign ownership limit (FOL) level-/?

Foreign room level-/?

Equal rights to foreign investors-/?

Foreign Ownership Limits: A 49% limit applies. A few companiesare fully closed to foreign investors.

Capital flow restriction level++

Foreign exchange market liberalization level++Investor Registration & Account Setup: Registration is mandatory.
The ease and time required for QFIs to register and set up local
accounts still needs to be assessed.

Information Flow: “-/?” to “+”: The use of IFRS has been enforced
for all listed companies beginning January 2017. Some informationis still available only in Arabic.

Clearing and Settlement: “-/?” to “+”: Effective April 2017, thesettlement cycle moved from T+0 to T+2, and pre-funding
requirement was eliminated. There is no nominee status andomnibus structures are not available1.

Custody: “-/?” to “+”: Under the “Securities Independent Custody
Model", custodians can now participate in the market settlement
process and have greater control over client assets.

Transferability: In-kind transfers and off-exchange transactions areprohibited.

Stock lending / Short selling: Have recently been allowed for all
listed securities but have not been tested yet.

Ease of capital inflows / outflows

Efficiency of the operational framework
Market entry
Investor registration & account set up-/?

Market organization
Market regulations+

Competitive Landscape+Information flow+

Market infrastructure
Clearing and settlement+Custody+

Registry / Depository++

Trading++

Transferability-/?

Stock lending-/?

Short selling-/?

Stability of institutional framework+

Note: ++: No Issue; +: No Major Issues, improvements possible; -/?: Improvements
needed / extent to be assessed1«Omnibus like» facilities have been available since January 2018

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CURRENT CONSTITUENTS OF MSCI SAUDI ARABIA INDEX
Company
ADVANCED PETROCHEMICALSAL RAJHI BANKING & INV
AL TAYYAR TRAVEL GROUP
ALINMA BANKALMARAI CO
ARAB NATIONAL BANKBANK ALBILAD
BANQUE SAUDI FRANSIBUPA ARABIA FOR COPR INS
CO FOR COOPERATIVE INS
DAR AL ARKAN REAL ESTATEEMAAR ECONOMIC CITYETIHAD ETISALAT CO
JARIR MARKETING CO
NATIONAL COMM BANKNATL INDUSTRIALIZATIONFull Mcap* FIF Mcap* FIF**
2,231
1,093
0.49
30,761
15,073
0.49
1,495
733
0.49
7,964
3,902
0.49
13,538
6,092
0.45
7,061
2,471
0.35
3,414
1,673
0.49
9,639
2,8920.3
1,832458
0.25
2,605
1,2760.49
2,782
1,363
0.49
3,021
1,4800.49
3,234
1,5850.49
3,959
1,9400.49
30,91012,3640.4
2,882
1,4120.49

Company
RABIGH REFINING & PETRO
RIYAD BANKSAMBA FINANCIAL GROUPSAUDI AIRLINES CATERINGSAUDI ARAB FERTILIZERSAUDI ARABIAN MINING COSAUDI BASIC IND CORPSAUDI BRITISH BANKSAUDI CEMENTSAUDI ELECTRICITY COSAUDI INDL INV GROUPSAUDI KAYAN PETROCHEMSAUDI TELECOM COSAVOLASOUTHERN PROVINCE CEMENTYANBU NATL PETROCHEMICALFull Mcap* FIF Mcap* FIF**
5,085
1,271
0.25
10,8314,333
0.4
13,066
6,402
0.49
1,755
790
0.45
7,358
3,311
0.45
15,871
5,555
0.35
83,276
20,8190.25
11,599
1,740
0.15
2,046
1,003
0.49
22,332
4,466
0.2
2,511
1,231
0.49
4,800
2,352
0.49
38,798
7,760
0.2
5,372
2,632
0.49
1,858
836
0.45
9,524
3,810
0.4

Pro forma data as of February 9, 2018 reflecting the changes due to the February 2018 Quarterly Index Review* USD million** Foreign Inclusion Factor• The MSCI Saudi Arabia Index is already maintained using the Emerging Markets size andliquidity requirements• Therefore, there would be no changes in the index maintenance rules for the MSCI Saudi
Arabia Index in case of reclassification to Emerging Markets
5KEY STATISTICS FOR THE MSCI SAUDI ARABIA INDEXES

Number ofConstituentsFree Float Market Cap(USD million)

Large Cap*Mid Cap*

Standard

Small Cap

IMI

16

16

32

42

74

103,622

20,495

124,117

16,709140,827

Pro forma data as of February 9, 2018 reflecting the changes due to the February 2018 Quarterly Index Review* The Large Cap / Mid Cap size segmentation is currently not available for the MSCI Saudi Arabia Indexes• The MSCI Saudi Arabia Index would have 32 constituents under Emerging Markets, and afree float‐adjusted market capitalization of USD 124.1 billion• The MSCI Saudi Arabia Small Cap Index would have 42 constituents under Emerging
Markets, and a free float‐adjusted market capitalization of USD 16.7 billion

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SIMULATED IMPACT ON THE MSCI EMERGING MARKETS INDEX
Simulated Standard IndexIndex MarketWeight# Sec.
CapEM

5,499,620100.0%

879

EM Asia
China
Korea
TaiwanIndia
Malaysia
Indonesia
ThailandPhilippines
Pakistan

3,904,570
1,604,848
776,047
609,549
466,557
133,041
122,398
128,840
58,849
4,439

71.0%
29.2%
14.1%
11.1%
8.5%
2.4%
2.2%
2.3%
1.1%
0.1%

573
153
113
90
79
46293523
5EM EMEASouth Africa
RussiaSaudi Arabia
PolandTurkeyUnited Arab Emirates
Qatar
GreeceHungary
Czech Republic
Egypt

927,580
367,651
188,328
124,11771,51756,74835,56430,41418,75817,87010,167
6,446

16.9%
6.7%
3.4%
2.3%
1.3%
1.0%
0.6%
0.6%
0.3%
0.3%
0.2%
0.1%

196
52
2232
2325
11129343EM Latin America
BrazilMexicoChile
ColombiaPeru

667,470
395,345
160,736
67,411
23,025
20,953

12.1%
7.2%
2.9%
1.2%
0.4%
0.4%

110
53
26
19
93

Note: All market caps are in USD millions. Pro forma data as of the close of February 9, 2018

• The MSCI Saudi Arabia Index
would have a potential weightof 2.3% in the MSCI Emerging
Markets Index• The size of the Saudi Arabian
equity market is expected toincrease further with the Saudi
Aramco IPO which is plannedfor the second half of 2018 (*)(*) As per the MSCI Global Investable Market
Indexes methodology, Saudi Aramco will be
included in the MSCI Saudi Arabia Index at thetime of the IPO as long as it fulfills all eligibility
criteria, including the listing of the company's
shares on an eligible stock exchange and related
market segment, e.g., Tadawul's Main Market7

KEY QUESTIONS• Is the level of accessibility of the Saudi Arabia equity market to foreign
investors (including the recent developments highlighted in thisdocument) sufficient to warrant a reclassification of the MSCI Saudi
Arabia Index to Emerging Markets?
• Should MSCI give more time before the reclassification in order formarket participants to fully absorb the changes that have been
implemented in the market?
• Are there any remaining market accessibility concerns that should
prevent the reclassification?
• What is your effective experience, if any, of investing in Saudi Arabian
equities through the QFI scheme?

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