Saudi Arabia’s Stock Exchange Market Moves Forward with Reforms

Goal is to make Saudi Arabia less dependent on oil income and attract more foreign investors to the country’s capital markets.

Saudi Arabia is moving ahead with various reforms to its stock exchange market, many of which are slated to go into effect by the end of the second quarter. The reforms aim to make Saudi Arabia less dependent on oil income and attract more foreign investors to the country’s capital markets.

Saudi Arabia also expects that the reforms will bring market efficiency, transparency and better corporate governance, and make the Saudi Stock Exchange, or Tadawul, better aligned with international standards and help get it included in emerging markets indices such as the Morgan Stanley Capital International (MSCI).

“It is vitally important that Tadawul’s market participants, both domestic and foreign, have access to a transparent and exceptional trade environment that conforms to the highest international standards,” said Khalid Abdullah Al Hussan, chief executive officer of Tadawul. “We have aggressively moved forward with a number of initiatives to strengthen corporate governance, improve investor relations capabilities of Saudi corporates, and bring Saudi Arabia’s trade settlement cycle into line with standard practice in a number of developed markets.”

Some of the reforms include:

  • The adoption of the Saudi Capital Markets Authority’s corporate governance rules issued in February. These rules serve to enhance shareholder and board member rights, as well as increase transparency and oversight for corporates.
  • Investor relations training for the stock exchange’s 24 companies that have the most international exposure and liquidity. This will focus on transparency and disclosure for these corporates, and make them more attuned to investor relations.
  • Amending the settlement cycle for listed securities to enhance investor safety and to be more aligned with settlement durations for many international markets.
  • Enabling qualified foreign investors to take part in Saudi Arabia’s domestic initial public offerings, through the country’s “qualified foreign investor” program.
  • The launching of a parallel equity market called “Nomu” that will offer lighter listing requirements and be an alternative avenue for companies to go public
  • Enabling custodians to reject settlement of unconfirmed trades executed by brokers by enhancing the “independent custody” model
  • Enabling delivery of securities only if payments are made, through a “delivery versus payment” approach
  • Allowing for borrowing and lending of securities, as well as covered short selling
  • Doing away with a “cash prefunding” requirement for specific investors and leaving the terms for cash availability to be contracted between the parties involved. This aims to better align with international standards and standardize institutional investor trading processes.

In January, Tadawul also formally went with the Global Industry Classification Standard (GICS) that makes it easier to compare companies and sectors across markets.

Since Saudi Arabia opened its markets to qualified foreign investors in 2015, Tadawul has drawn 56 international financial institutions, according to the Saudia Arabia stock exchange.

Al Hussan noted, “As part of the Kingdom’s efforts to achieve emerging markets status and demonstrate genuine engagement with institutions, Tadawul has conducted three roadshows to date in the US, Europe and Asia with more than 250 participating investors, which together represent at least USD$18.05 trillion in investable assets. Based on the positive feedback and interest received to date, we hope to see a continued rise in qualified foreign investor applications and registrations through year end.”


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