The CMA’s equity token framework, finalized in Q4 2025, establishes the regulatory architecture for tokenizing company shares and investment fund units in Saudi Arabia. One equity fund has been tokenized (SAR 200M on the Tadawul digital securities platform), and 2 direct company equity tokenizations are in the CMA approval pipeline for Q2-Q3 2026. The framework’s fractional ownership capability reduces minimum equity investment from conventional lot sizes (typically SAR 5,000-50,000 depending on share price) to as low as SAR 100, potentially opening Saudi Arabia’s $2.7 trillion equity market to a significantly broader investor base.
Framework Structure
The equity token framework distinguishes between two tokenization models:
Model 1: Fund Unit Tokenization
Tokenization of units in CMA-licensed investment funds. The fund’s underlying assets remain in conventional form (e.g., Tadawul-listed equities), while the fund units themselves are issued as blockchain tokens.
Advantages:
- Simpler regulatory pathway (fund already CMA-regulated)
- No impact on underlying company corporate governance
- Enables fractional ownership of diversified portfolios
- Compatible with existing fund regulatory framework
Current status: One Sharia-compliant Saudi equity fund has been tokenized (SAR 200M AUM), with units tradable on the Tadawul digital securities platform.
Model 2: Direct Equity Tokenization
Tokenization of company shares, where each token represents direct fractional ownership in the issuing company.
Advantages:
- Token holders are direct shareholders with voting rights, dividend entitlements, and all shareholder protections under Saudi corporate law
- No intermediary fund structure (lower costs)
- Real-time shareholder register enables instant corporate governance participation
Challenges:
- Requires amendment to the company’s articles of association to permit tokenized shares
- Corporate governance implications (fractional voting rights, shareholder meeting logistics)
- More complex regulatory review process
- Integration with existing Edaa shareholder register systems
Current status: Two companies in the CMA approval pipeline — one private company seeking to tokenize shares as an alternative to a traditional IPO, and one existing Tadawul-listed company tokenizing a portion of its share capital.
Regulatory Requirements
Issuer Requirements
Companies seeking to tokenize equity must:
- Be incorporated under Saudi corporate law (joint stock company or limited liability company)
- Obtain board and shareholder approval for equity tokenization
- Appoint a CMA-licensed digital asset issuer as the tokenization agent
- Deploy smart contracts on a CMA-approved blockchain protocol
- Complete smart contract security audit and Sharia review (for Sharia-compliant equity)
- File a Digital Asset Prospectus with the CMA
- Maintain ongoing disclosure obligations for all material events
- Engage a CMA-licensed custodian for investor token safekeeping
Investor Access
Equity token investor access follows the CMA’s tiered investor protection framework:
- Qualified Investors: Unrestricted access to all equity tokens
- Semi-Qualified Investors: Access to equity tokens with minimum SAR 500M issuer market capitalization
- Retail Investors: Access limited to equity tokens of companies with minimum SAR 2B market capitalization and 2 years of audited financial history (or equity fund tokens with minimum SAR 500M AUM)
Corporate Governance
Tokenized equity must preserve all shareholder rights:
Voting Rights: Token holders must be able to exercise voting rights at shareholder meetings. The framework permits digital voting through smart contract-based proxy mechanisms, enabling real-time shareholder voting without physical meeting attendance.
Dividend Rights: Dividend distributions must be automated through smart contracts, with payment in SAR (via stablecoin or direct bank transfer). The distribution smart contract must comply with Saudi corporate law dividend restrictions and Sharia purification requirements where applicable.
Pre-Emption Rights: Existing shareholder pre-emption rights in new share issuances must be preserved in the tokenized structure, with smart contract-based rights offer and subscription mechanisms.
Information Rights: Token holders are entitled to all information available to conventional shareholders, delivered through on-chain and off-chain channels.
Fractional Ownership Mechanics
Equity token fractional ownership enables investment in quantities smaller than one whole share:
Minimum Fraction: 0.001 shares (1/1000th of a share), enabling minimum investments of SAR 100 for shares priced up to SAR 100,000.
Voting Fractions: Fractional voting rights accumulate. A holder of 0.5 shares has 0.5 votes. Smart contract aggregation enables fractional vote tabulation for shareholder resolutions.
Dividend Fractions: Dividend payments are proportional to fractional holdings, calculated to 4 decimal places. Minimum distributable dividend per holder: SAR 0.01 (amounts below this threshold are accumulated and distributed when the threshold is met).
Trading: Fractional shares trade on the Tadawul digital securities platform in minimum increments of 0.001 shares, with continuous order matching.
Market Opportunity
The equity token framework addresses several market dynamics:
Retail Access: Saudi Arabia’s equity market is dominated by institutional and high-net-worth investors. A landmark reform effective February 1, 2026 abolished the Qualified Foreign Investor concept entirely, opening Tadawul to all categories of foreign investors — including retail — for the first time. Fractional tokenized equity could expand the retail investor base from approximately 5 million current Tadawul account holders to a significantly larger population, particularly among younger demographics aligned with Vision 2030 digital economy objectives. With 97% smartphone penetration and 14.4 million digital wallet users in the Kingdom, the infrastructure for retail distribution already exists.
Private Company Access: Saudi Arabia has approximately 1,200 companies with revenues exceeding SAR 100M that are not publicly listed. Equity tokenization offers a regulated alternative to traditional IPO for capital raising and share liquidity, with lower issuance costs and ongoing compliance burden.
International Investment: Tokenized Saudi equity enables international investors to participate in the Kingdom’s equity market with lower friction — atomic settlement eliminates the custody chain complexity that currently characterizes cross-border Saudi equity investment.
Index Products: Tokenized equity enables creation of tokenized Saudi equity indices and ETF-equivalent products with real-time rebalancing, tradable 24/7 on the digital securities platform.
Integration with Existing Market Infrastructure
Tadawul’s equity token integration strategy preserves compatibility with existing market infrastructure:
- Edaa integration: Tokenized shares are registered in Edaa’s system alongside conventional shares, maintaining a unified shareholder register
- Broker integration: Existing Tadawul brokers can route equity token orders through the same systems used for conventional share trading
- Corporate action processing: Dividends, splits, rights issues, and other corporate actions are processed through smart contracts but reported through existing Tadawul corporate action channels
- Market surveillance: CMA market surveillance systems monitor tokenized equity trading using the same algorithms as conventional equity surveillance
Outlook
Valuation and Pricing Considerations
Equity token valuation introduces considerations beyond conventional equity pricing:
NAV-Based Pricing for Fund Tokens: Tokenized fund units are priced based on the fund’s net asset value, calculated daily and published on-chain. The smart contract enforces that creation and redemption of fund tokens occurs at the published NAV, preventing the premium/discount dynamics that characterize conventional closed-end funds. This mechanism ensures that tokenized fund investors always transact at fair value — a meaningful improvement over conventional fund structures where secondary market pricing can diverge significantly from NAV.
Market-Based Pricing for Direct Equity Tokens: Direct equity tokens trade on the Tadawul digital securities platform at market-determined prices, with designated market makers providing continuous two-sided quotes. The relationship between tokenized share prices and conventional share prices (for dual-listed securities) is monitored by CMA surveillance systems to prevent arbitrage manipulation.
Fractional Share Valuation: Fractional shares are valued proportionally to the whole-share market price. A holder of 0.5 shares of a company trading at SAR 200 holds equity valued at SAR 100. Portfolio valuation systems at broker-dealers and custodians must aggregate fractional holdings across multiple accounts to ensure accurate client reporting.
Liquidity Premium/Discount: During the early adoption phase, equity tokens may trade at a discount to their conventional equivalents due to lower secondary market liquidity. The CMA has mandated that all equity token offering documents disclose the potential for liquidity-related price deviation from conventional equivalents.
Tax Treatment
The Saudi tax authority (ZATCA) has provided preliminary guidance on equity token taxation:
Capital Gains: Capital gains on equity tokens are taxed identically to conventional equity capital gains under Saudi tax law. Saudi nationals are generally exempt from capital gains tax on listed securities; non-resident investors are subject to withholding at applicable rates.
Dividends: Dividend distributions through smart contracts receive the same tax treatment as conventional dividend payments. The smart contract must integrate with ZATCA reporting systems to ensure accurate withholding tax deduction for non-resident token holders.
Zakat: Equity tokens held by Saudi individuals and Saudi-owned entities are subject to zakat assessment on the same basis as conventional equity holdings. Edaa’s reporting to ZATCA includes tokenized equity positions alongside conventional positions.
Risk Factors Specific to Equity Tokenization
Issuers and investors should consider several risk factors unique to equity tokenization:
Smart Contract Governance Risk: The equity token smart contract governs critical shareholder rights including voting, dividends, and transfers. Any bug or vulnerability in the smart contract could affect shareholder rights. CMA-mandated security audits and formal verification mitigate but do not eliminate this risk.
Corporate Law Uncertainty: While the CMA has adapted securities regulations for tokenized equity, Saudi corporate law (the Companies Law) was drafted for conventional share registers. Edge cases — such as the legal standing of fractional shareholders in insolvency proceedings, or the validity of smart contract-executed proxy votes — may require judicial interpretation.
Concentration of Technology Risk: All equity tokens on the Tadawul platform use the R3 Corda protocol. A critical vulnerability in Corda would affect all tokenized equity simultaneously. The CMA’s multi-chain strategy envisions protocol diversification to mitigate this concentration risk over time.
Key Management Risk: Token holders who use self-custody for their equity tokens bear the risk of private key loss, which would effectively orphan their equity ownership. The CMA requires that equity token issuers maintain a recovery mechanism through Edaa that can restore token access upon proof of identity, but this process may take 30-60 days.
Employee Equity Tokenization
A particularly promising application of the equity token framework is employee equity compensation:
Stock Option Plans: Saudi companies can tokenize employee stock option plans, with smart contracts automating vesting schedules, exercise mechanics, and lock-up enforcement. The tokenized structure provides employees with real-time visibility into their equity compensation value and automatic exercise at optimal tax timing.
Restricted Stock Units (RSUs): Tokenized RSUs vest according to smart contract-enforced schedules, with automatic Edaa registration upon vesting. This eliminates the manual administrative processes that currently characterize Saudi RSU programs, reducing administrative costs for human resources and finance departments.
Startup Equity: Saudi startups funded through fintech venture capital can use equity tokenization to manage complex cap tables with multiple investor classes, option pools, and convertible instrument structures. Smart contract-enforced anti-dilution provisions, drag-along rights, and liquidation preferences automate the governance complexity of startup equity.
Outlook and Growth Trajectory
The CMA projects equity tokenization to follow the path of tokenized sukuk — starting with institutional products and gradually expanding to retail-accessible offerings:
- 2026: 3-5 equity token listings (fund tokens and 1-2 direct company tokenizations), with total tokenized equity market cap of SAR 1-2 billion
- 2027: 10-15 listings, including first private company equity tokenization as IPO alternative, with market cap reaching SAR 10-20 billion
- 2028: Integration of tokenized and conventional equity into a unified Tadawul trading infrastructure, enabling any listed company’s shares to settle via DLT
- 2030: Target SAR 100 billion in tokenized equity market capitalization, representing approximately 3% of Tadawul’s total market cap
The equity token framework represents the most transformative element of Saudi Arabia’s tokenization agenda because it touches the core of the capital market — company ownership. While sukuk tokenization and bond tokenization optimize fixed-income operations, equity tokenization redefines how companies raise capital, how investors participate in corporate ownership, and how the Kingdom’s $2.7 trillion equity market operates at a fundamental level. The CMA’s measured approach — starting with fund tokens, progressing to direct equity, and culminating in full convergence with conventional equity infrastructure — reflects the scale of this ambition and the institutional care required to execute it without disrupting the existing $2.7 trillion market that serves as the foundation of Saudi Arabia’s capital markets ecosystem.
The legal infrastructure supporting equity tokenization draws strength from Saudi Arabia’s broader institutional framework. The Kingdom’s Companies Law, combined with CMA regulations and the Sharia compliance overlay, provides a multi-layered governance structure that protects shareholder rights regardless of whether those shares exist as conventional book entries or blockchain tokens. As the CMA’s international cooperation agreements expand, equity tokens issued in Saudi Arabia may also become accessible to international investors through mutual recognition frameworks, further expanding the addressable market for Saudi equity tokenization.
For equity tokenization inquiries: info@sauditokenisation.com