ETFs are investment funds divided into equal units traded on the exchange during trading time, similar to stocks. ETFs enjoy advantages of both mutual funds and stocks.

Like other investment funds ETFs are composed of a basket of assets (listed companies shares), however unlike mutual funds ETFs are traded on the exchange. ETFs are more transparent since they track the movement of the underlying assets index and investing in the index by the same proportions. It is easier for investor to measure the performance of the ETF by tracking the movement of the underlying assets index. ETF units are traded by Bids and Asks during trading time.

ETFs are characterized by the existence of the market maker who is working to simulate the performance of its indices by continuously placing bids & asks in the ETF market.

ETFs entered global markets for the first time in the year 1989 through the Canadian market followed by the U.S. in 1993. Since then ETFs experienced rapid growth, the ETF asset under management (AUM) have increased from $72 billion in 2001 to $700 billion by the end of 2009 in the U.S. market alone.

1.Transparency

Since ETFs track the underlying assets indices, the individual invested components and their weights in ETF are known and it is easy to track these individual components. The ETF managers are committed to provide full disclosure of ETF components and the index. In addition, Fund managers are obliged to disclose the unit value during the trading hours called iNAV (indicative Net Asset Value) beside end of the day value known as Net Asset Value (NAV.) Thus investors will be able to continuously assess the ETF unit value (iNAV) throughout the trading time.

2.Flexibility

ETF units are easy to deal with, investors can buy and sell it directly through ETFs market (like stocks), unlike MFs, where the investor must deal directly with the fund manager, ETFs allow the investors to buy any ETFs units directly through ETFs market without dealing with fund managers.Eventually ETFs do not require a minimum subscription amount.

3.Cost

The cost of investing in ETF is generally low, (trade commission). Further, ETFs management fees are very low and fund managers are committed only to the fees as disclosed in funds prospectuses.

4.Diversified Investments

Generally, ETF investments are diversified (basket of assets) this reduces the risk of directly investing in stocks.

The following table compares the ETF and other investment instruments i.e., mutual funds and stocks:

Category	ETFs	Mutual Funds	Stocks
Transparency	More	Less	More
Flexibility	More	Less	More
Cost	Less	More	Less
Diversification	More	More	Less

5.Market Maker definition and role

Market Maker is an entity licensed by the Capital Market Authority (CMA) whose function is to provide liquidity in the ETFs market, or more precisely to provide continuous bids and offers so that the investor can buy or sell ETF units during trading time.

However, market makers are subject to the following CMA conditions & obligations:

1.A market maker is committed to continuously provide ETF buy and sell orders at specified bid-ask spread within the iNAV.
2.ETF Bids and Asks must not be less than a specific amount or it is equivalent units.

Market makers are obliged to place order after 5 minutes after market open and until 5 minutes before closing. The market maker activities will be monitored by the fund managers and the exchange to ensure market makers compliance to it is obligations.

Exchange Traded Funds (ETFs):Are investment funds divided into units of equal value traded on the exchange during the market time.

Fund Manager:Is the participant that issues and manages ETFs and is licensed by the Capital Market Authority for Asset Management.

Net Asset Value (NAV):Total assets (underlying value and cash dividends) of the Fund minus the total liabilities (management fees, audit fees, ..etc). Fund manager is obliged to disclose the value per unit (NAV) of ETF at the end of each trading day on it is website and the exchange website as well.

Indicative Net Assets Value (iNAV):Is a measure of unit net assets value during trading time, influenced by the underlying assets price changes.

Market Maker:Is a participant authorized by the Capital Market Authority to provide liquidity on a particular ETF through providing continuous buy and sell orders.

Indices:Numerical criteria for measuring the performance of a group of companies listed on the exchange.

Spread:Is the difference between the bid and the ask.

Creation:Is the process of market maker purchasing ETF units directly from the fund manager according to the instructions of the Fund manager.

Redemption:is the process of market maker selling the ETF units directly to the Fund Manager according to the instructions of the Fund Manager.

Same trading time & order types for Equity will be applied for ETF trading.

1. What are Exchange Traded Funds, how and when they started?
ETFs are investment funds divided into equal units that are traded on the exchange during trading time. ETFs enjoy advantages of both mutual funds and stocks at the same time without any major disadvantages..

ETFs entered global markets for the first time in 1989 through the Canadian market followed by the U.S. in 1993. Since then ETF have enjoyed rapid growth, the ETF asset under management (AUM) have increased from $72 billion in 2001 to $700 billion by the end of 2009 in the U.S. market alone.

2. How can investors buy ETFs?
Investors can buy and sell ETF units throughout the exchange trading time. The units can also be created / redeemed through the market maker or any other authorized party.

3. Is there any upper or lower limits on the number of ETF units that an investor can buy or sell?
Minimum ETF than an investor can purchase over the exchange is one unit, whereas creation of ETF units would be as per ETF terms and conditions.

4. What are the advantages of ETF and mutual funds?

Category	ETFs	Mutual Funds
Transparency	More	Less
Flexibility	More	Less
Cost	Less	More
Diversification	More	More

5. What are the benefits of investing in ETFs?
In general, the investors could gain from the increase in the value of the underlying assets of the ETF in addition to any dividends paid.

6. Is there a relationship between the ETF performance and the performance of the underlying stocks of the ETF?
Yes, there is a direct relationship between the performances of the ETF NAV and the value of underlying assets. Whenever the underlying stocks market value increases the ETF NAV increases.

7. Are there any commissions or other administrative expenses borne by the buyer or seller of these units?
The cost of buying and selling ETF units is identical to stock trade commission which is 12 basis points per trade value.

8. Do the ETF investors get dividends in-kind or in cash?
This is decided according to the policy of ETF as disclosed in the prospectus.

9. Is the unit price for the ETF is equal to the stock prices of the underlying constituent of the ETF?
One must clearly distinguish between the trading price of the ETF units which is subject to supply and demand and the value of net assets (NAV) of the unit which represents the market value of assets consisting of the ETF unit. Often buying and selling of ETF units happen at a price very close to the value of net assets.

10. Would the ETF prospectus be available before the ETF starts trading on the primary and secondary markets?
Yes, The Fund Manager, as per Capital Market Authority regulations particularly ETF regulations, is obliged to provide the ETF prospectus and the terms and conditions an adequate period ahead of the ETF trading.

11. What are the risks that investors may face by investing in ETF?
YThe risks that investors may face by investing in ETF are the same as that of investing in securities. However, due to benefits of diversification, risks of investing in ETF may be less.

12. Are ETFs limited to stocks only?
No, ETFs are not limited to the stocks only they may also include other instruments or commodities such as gold and silver. However, in the initial phase of this product, ETFs will be limited to Saudi equities only.

13. Who will be the provider of ETFs?
Authorized participants having Asset Management license issued by the Capital Market Authority.

14. Are there any limits to the ownership of ETFs?
No, it is subject to ETF volume available in the stock market.

15. Would all categories and nationalities be allowed to invest in ETFs?
Yes, ETFs will be available to all categories of investors who are registered to trade in the exchange.

16. Would the ETF owners have the right to attend assemblies and vote?
ETFs are managed completely and directly by the fund manager and subject to the Investment Fund Regulations issued by the Capital Market Authority (CMA), therefore no general assembly is arranged for these funds.

17. Would the transfer process be available between the customer^'s portfolios?
Yes, with the same terms and conditions of the transfer of shares.

18. How would the ETF units be priced in the secondary market?
The ETF will be priced at NAV upon listing on the secondary market, then going forward ETF unit price will be determined by the market forces (supply and demand).

19. When does the ETF expire and be delisted from the market?
Upon redemption of all ETF units by the Fund Manager.

20. Can an authorized participant issue more than one ETF at a time or at different times?
Yes, an authorized participant can issue more than one ETF, at the same time, based on different styles or strategies.

21. Can an authorized participant issue ETFs consisting of local and international shares?
Yes, after the approval of Capital Market Authority (CMA).

22. What are the most popular international markets for ETFs?
ETFs are generally traded in the international markets however ETFs are traded more actively in the United States, Canada and Germany.