The capital markets of the Gulf Cooperation Council (GCC) are entering a pivotal phase of structural reform, moving decisively beyond rapid growth in initial public offerings (IPOs) toward deep regulatory harmonisation.
Following a strong period, exemplified by fiscal year 2024 seeing the highest IPO volumes on record across the GCC region, with 53 listings and the UAE accounting for nearly half of the total proceeds, the focus has shifted.
The strategic imperative is no longer merely attracting listings but creating a unified, highly liquid regional market that is structurally appealing to global institutional investors. This secondary-generation reform agenda is characterised by subtle, yet critical, steps toward regulatory convergence, most notably the implementation of the GCC Funds Passporting Regime and the standardisation of corporate governance disclosure. This approach seeks to raise regional index weightings and establish the Gulf as a consolidated, internationally credible asset class.
The foundation for the current integration effort rests on robust macroeconomic fundamentals and resilient markets. While major global IPO markets faced closures and caution through 2023, the GCC remained wide open, supported by high oil prices and proactive government policies.
This period of market strength has provided regulators such as Saudi Arabia’s Capital Market Authority (CMA) and the UAE’s financial free zone regulators (DFSA in DIFC and FSRA in ADGM) with the confidence necessary to pursue complex liberalisation reforms without fear of immediate destabilisation.
Harmonising Fund Distribution And Disclosure Standards
The core goal of the current reforms is to enhance secondary market liquidity. Leading exchanges are explicitly turning their attention to boosting trading turnover ratios, a key metric scrutinised by global index providers.
Large secondary market offerings, such as the major sell-down in ADNOC Gas, are intentionally designed to increase free float, directly facilitating promotion to influential global indices like the MSCI Emerging Market Index, thereby acting as a critical magnet for passive institutional capital. Despite this outward progress, internal market fragmentation has been a persistent hurdle.
Companies seeking to cross-list report practical difficulties stemming from disparate local reporting practices, which can confuse international investors and even lead to voluntary delisting from regional bourses.
The difficulty in achieving seamless internal integration contrasts sharply with the recent success of Tadawul, ADX, and DFM in achieving Recognised Stock Exchange (RSE) status with the Hong Kong Exchanges and Clearing Limited (HKEX).
This distinction suggests a strategic prioritisation in establishing external credibility by conforming to high international standards (like HKEX’s RSE rules) is viewed as a necessary precursor to attracting external capital, while the slower, more politically challenging internal harmonisation of national sovereignty over detailed reporting rules proceeds incrementally.
The most transformative step toward capital market unification is the Cross-border Registration Regulation for Investment Funds, commonly known as the GCC Funds Passporting Regime. Approved by the GCC Committee of Heads of Financial Market Authorities in late 2024 and scheduled for implementation in early 2025, this framework standardised the rules for registering and promoting investment fund units across member states.
It represents the first financial product to be governed by a streamlined, GCC-level framework. This regime is particularly notable for its careful structure designed to respect national regulatory autonomy while facilitating cross-border access. The operation requires cross-registration through both the investment fund’s registering authority (home state) and the destination state (host regulatory body).
The critical element designed to overcome local regulatory resistance is the mandate that fund applications must designate a local placement agent to delegate promotion within host jurisdictions. This requirement ensures that while the fund unit itself is passported, the host regulatory body retains explicit authority and responsibility for managing compliance specific to the placement agent’s activities and investor relationship protection within its borders.
This mechanism ensures harmonisation does not undermine local investor safeguards, which is a necessary political condition for its broad adoption. Furthermore, the GCC regime draws heavily upon the successful 2019 intra-UAE passporting model, which streamlined distribution among DIFC, ADGM, and Onshore UAE jurisdictions.
Given the explosive growth in assets under management (AUM) within the UAE’s common-law financial free zones. DIFC’s AUM surged 58% to USD 700 billion, and ADGM recorded a 226% increase in AUM in Q1 2024. The GCC-wide passporting regime cements the UAE hubs as the strategic regulatory gateway for regional fund distribution.
Fund managers licensed in these familiar, internationally aligned jurisdictions can now efficiently market their products across the broader GCC, including the large, rapidly deepening Saudi market. This framework also supports the democratisation of investment by facilitating the online distribution of diversified products, such as foreign funds and specialised investment trusts, reaching a younger investor base.
Addressing the qualitative requirements of global institutional investors is the second key pillar of harmonisation, which is disclosure convergence. The GCC Exchanges Committee, under the leadership of the Saudi Exchange, has launched a unified set of 29 Environmental, Social, and Governance (ESG) disclosure metrics for all listed companies.
These indicators are aligned with major international frameworks, such as those from the World Federation of Exchanges. While these metrics currently serve as guidance, their introduction is a strategic step.
Large global funds need to meet their internal ESG mandates, and standardised regional reporting—focusing on metrics such as board diversity and greenhouse gas emissions—greatly reduces the compliance burden and lowers the perceived informational risk tied to investments in the Gulf Cooperation Council (GCC). This initiative is further supported by the GCC Financial Markets Committee’s Unified Investor Relations Guideline 2025, which aims to enhance transparency and boost investor confidence across the Gulf region.
By proactively standardising non-financial metrics, the exchanges are laying the groundwork for eventual convergence in prospectus content and financial reporting, thereby addressing a known impediment to successful cross-listing. This regional push is reinforced by strong national regulatory updates. For instance, Saudi Arabia revised its Governance Code to reflect international best practices, mandating greater board independence and tightening definitions of related parties.
These concerted governance efforts ensure that the quantitative growth achieved through higher liquidity and IPOs is structurally sound and appealing to institutional indices that scrutinise market quality beyond mere size.
The regulatory convergence dramatically lowers the non-market risk associated with accessing multiple distinct GCC jurisdictions. This simplification of compliance and distribution is highly attractive to global institutional investors, making the aggregated GCC market a more viable candidate for significant capital allocations. The integration strategy, however, yields differentiated benefits across the major financial hubs, reflecting a calculated dynamic of competitive cooperation.
Saudi Arabia stands to benefit most in terms of sheer market depth and growth in assets under management. The Kingdom requires a stronger domestic institutional base to support its privatisation pipeline, and the passporting regime allows its vast investor base to access products established in the compliant UAE financial centres.
Meanwhile, the UAE financial free zones, already established as premier asset management destinations, leverage the passporting regime to shift their competitive advantage from simple fund establishment (tax/legal structure) to regional distribution. By efficiently managing the cross-border marketing complexities, DIFC and ADGM secure a disproportionate share of the fund administration and licensing revenue flowing into the aggregated GCC market.