In line with the Capital Markets Authority’s (the “CMA”) ongoing efforts to develop and modernise the regulatory framework governing securities activities, and in pursuit of alignment with international standards in capital markets best practices, the CMA has approved a comprehensive regulatory framework governing Exchange Traded Funds (“ETFs”).

This development represents a significant milestone in the evolution of Kuwait’s investment landscape, providing investors with access to a modern investment vehicle that combines the diversification benefits of collective investment schemes with the liquidity and accessibility of publicly traded securities.

Regulatory framework & Market development

The newly introduced framework establishes the legal and regulatory foundations for the establishment, operation, listing, and trading of ETFs on Kuwait’s stock exchange. The framework is designed in accordance with internationally recognised regulatory standards and aims to create a transparent and efficient environment for both fund operators and investors.

By formally regulating ETFs, the CMA has expanded the range of investment products available in the Kuwaiti market, allowing investors to gain exposure to diversified portfolios through a single listed instrument. This development is expected to contribute to the continued modernisation of the capital markets sector and support the introduction of innovative investment solutions.

Key features of Exchange Traded Funds

An ETF is an open-ended investment fund whose units are listed and traded on a stock exchange throughout market hours at prevailing market prices. Unlike traditional investment funds, ETF units can be bought and sold in real time, providing investors with enhanced flexibility and liquidity.

Under the CMA framework, ETFs may be designed to track the performance of a specific index, including equity, fixed income, commodity, or other eligible benchmark indices. Fund units may also be created through in-kind subscriptions using a basket of underlying assets, a mechanism commonly utilised in global ETF structures.

The framework further introduces specialised market participants, including authorised participants and market makers, whose role is to facilitate the creation and redemption of units and support market liquidity. These mechanisms are intended to ensure efficient price discovery and minimise deviations between market prices and the underlying net asset value of the fund.

The framework also permits securities lending and borrowing transactions, subject to prescribed limits, while allowing for the listing of certain foreign ETFs and feeder ETFs. These measures enhance investment diversity and broaden access to international markets through regulated channels.

Conclusion

The CMA’s introduction of a dedicated regulatory framework for Exchange Traded Funds marks a significant advancement in Kuwait’s capital market development. By providing a modern, transparent, and liquid investment product, the framework broadens investment opportunities for market participants while enhancing market efficiency and competitiveness.

Authors: Mohammed Al Awadhi, Partner and Ahmed AlBuaijan, Trainee Lawyer