Saudi Bourse Takes More Steps to Bolster Emerging Markets Case

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  • Enhancements seen for independent custody model, asset orders
  • Kingdom seeks FTSE, MSCI emerging market status this year

Renaissance Capital's Badr Sees Positive Saudi Arabia Investor Sentiment

Saudi Arabia’s stock exchange is forging ahead with its effort to win emerging markets status this year, taking further steps to amend trading rules.

The Tadawul bourse will update its independent custody model and introduce measures to allow asset managers to aggregate orders of managed assets, it said in a statement on Wednesday. It will also move to an auction method to determine closing prices and implement a market-making program aligned with global best practices.

Already the biggest stock market in the Middle East, the Tadawul has been making reforms to strengthen its position as a gateway to the kingdom and is seeking to double its market capitalization in the next five years. The government plans to create the world’s largest sovereign wealth fund and sell hundreds of state assets, including shares of oil giant Saudi Arabian Oil Co., known as Aramco, which could take place as early as this year.

“We have been very close to index providers as well as international providers,“ the Tadawul’s Chief Executive Officer Khalid Abdullah Al Hussan said in an interview on Wednesday. “We have been very aggressive in the means of reaching international investors and educating them about these changes, making sure all changes are understood. I think things are moving on the right track. I see positive feedback from investors and international index providers. ” 

Last year, the Tadawul shifted its settlement cycle to T+2, introduced short-selling and started a parallel market with less stringent requirements for listing, among other changes. FTSE Russell will announce in March if it will add the country to its emerging markets category, and a decision is expected from MSCI Inc. in June.

The following changes are being introduced by the bourse:

  • Updating the independent custody model (ICM) to improve qualified foreign investor access by providing more flexibility in trading limits. Set to take effect Jan. 21.
  • Introduction of a new optional model to allow asset managers to aggregate all the orders of managed assets, aiming to assure “best execution and fair allocation” for funds managed and clients. Set to take effect Jan. 21.
  • Moving from a volume weighted average price (VWAP) to an auction method for determining closing prices for the main market and Nomu parallel market. Also plans enhancements to opening price auction. Both steps to be implemented by the second quarter.
  • Implementing a market making program aimed at enhancing liquidity and facilitating orderly price formation. To be implemented by the second quarter.
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