Saudi bourse Tadawul officially launches derivatives market

The Saudi Stock Exchange (Tadawul) launched the kingdom’s first exchange-traded derivatives market and clearing house on Sunday, as part of its strategy to make its equity markets more attractive to foreign investors.

Using Nasdaq technology, the Saudi Futures 30 (SF30) Index Futures Contract is based on the MSCI Tadawul 30 (MT30), the first exchange-traded derivatives product.

“This is a significant step in introducing sophisticated market products and creating a trading environment that is attractive to local as well as international investors,” said Tadawul CEO Khalid Alhussan.

In a separate statement it said Goldman Sachs Saudi Arabia has become a member of Tadawul with the right to conduct brokerage services for derivatives trading and to deal as a principal and as an agent for the new market launch.

Saudi authorities have introduced a raft of reforms to attract overseas share buyers and issuers as part of efforts to lure foreign capital and diversify the oil-dependent economy.

In 2019, the Saudi market joined the FTSE Emerging All Cap Index and the MSCI Emerging Markets Index, triggering more foreign fund inflows.

In July, Tadawul officials said the bourse plans to launch other derivatives-related products, such as options, and complete the whole system by around the end of 2021 or the start of 2022.

The FTSE Russell launches local currency Saudi government bond index last Thursday. Global index provider FTSE Russell said on Thursday it had launched a bond index for Saudi Arabia to measure the performance of fixed-rate, local currency government bonds, a move which could lead to new inflows to the Saudi market.

The FTSE Saudi Arabian Government Bond Index will cover sukuk and non-sukuk government bonds with at least one year to maturity and a minimum amount outstanding of 1 billion riyals ($266.65 million).

Riyadh’s government bond market will be reviewed by FTSE Russell in its Fixed Income Country Classification review next month, which could lead to an inclusion of Saudi domestic bonds in the FTSE Emerging Markets Government Bond Index (EMGBI).

As of July 31, 2020, 45 Saudi securities with a total market value of 273.2 billion riyals ($72.9 billion) were eligible for inclusion in the index, according to the FTSE statement.

Saudi Arabia opened its stock market to foreign investors in 2015. It has since introduced a raft of reforms to make its capital markets attractive to foreign investors and issuers and to expand its institutional investor base, as part of an ambitious plan to diversify the economy away from hydrocarbons.

Riyadh began offering local currency bonds in monthly auctions in 2015 to help cover a huge budget deficit and it launched monthly sukuk issues in mid-2017.

In 2018, the Saudi stock exchange began listing domestic government bonds to facilitate riyal issuance by encouraging secondary market trade.

Since 2016, Saudi Arabia has also become a regular debt issuer in the international markets, borrowing tens of billions of dollars to boost state coffers.

The Saudi market joined the FTSE Emerging All Cap Index and the MSCI Emerging Markets Index last year, triggering more foreign fund inflows.

Saudi Arabia’s stock exchange (Tadawul) plans to launch an environmental, social or governance (ESG) index in cooperation with global index provider MSCI by the fourth quarter of this year or first quarter of 2021, the bourse’s chief executive said last week.

The index will include at least 70 Saudi listed companies and will be based on MSCI standards, Khalid Al-Hussan said at a virtual event.

“Globally we understand that ESG is becoming an investment requirement and we don’t want to be behind this in the Saudi market,” he added.

Demand for climate-friendly and sustainable investments has been on the rise over the past few years and has seen another boost during the COVID-19 pandemic, with many investors globally shifting their focus on to businesses with more sustainable, low-carbon models.

With a market capitalisation of $2.5 trillion, thanks in part to the Saudi Aramco IPO in 2019, Tadawul is the world’s 9th biggest stock market, ranked after the London Stock Exchange and ahead of Canada’s Toronto Stock Exchange, according to World Federation of Exchanges data.

Saudi authorities have introduced a raft of reforms to attract overseas share buyers and issuers as part of efforts to attract foreign capital and diversify the oil-dependent economy.

In 2019, the Saudi market joined the FTSE Emerging All Cap Index and the MSCI Emerging Markets Index, triggering more foreign fund inflows.

The bourse also plans to issue ESG guidelines for Saudi listed corporates in the fourth quarter.

Reuters