- Far-ranging measures aim to raise market efficiency, boost investor access, security and improve liquidity in the Saudi capital markets
- Latest round of market enhancements build on ground-breaking reforms implemented by the Saudi Stock Exchange in 2017
Tadawul, the Saudi Stock Exchange, today announced a series of significant measures to improve market access and efficiency, enhance liquidity, bolster investor security, mitigate risk and further align market practices with global best practices. Newly announced measures include:
- Updating the Independent Custody Model (ICM) to enhance Qualified Foreign Investor access to the market by providing more flexibility in trading limits for ICM clients. Along with this change, a new procedures will be introduced to mitigate credit risk associated with the settlement process for all participants
- Introducing a new optional model to allow asset managers to aggregate the orders of managed assets (discretionary portfolios “DPs” and investment funds), assuring best execution and fair allocation for their funds and clients;
- Moving from a Volume Weighted Average Price (VWAP) to an auction method for determining closing prices for both the Main Market and Nomu parallel market ;
- Enhancing the opening price auction in line with practices adopted by most other major markets;
- Implementing a Market Making (MM) Program based on global best practices to enhance liquidity, facilitate orderly price formation, fortify the sukuk, bond and ETF markets and pave the way for ETPs and derivatives.
The changes to the ICM and introduction of the option for Asset Managers to aggregate orders are set to be implemented effective January 21, 2018. The changes to the methods for determining opening and closing prices and introduction of the Market Making program are scheduled to be implemented by the second quarter of 2018.
“The cumulative impact of these measures will be a more efficient, liquid and secure market for investors and intermediaries that is further aligned to international best practices,” said Khalid Abdullah Al Hussan, Chief Executive Officer of Tadawul. “This next generation of market improvements builds on and augments the reforms already successfully implemented by Tadawul in 2017 to improve market function, protect investors and further consolidate Tadawul’s position as the leading market in the region and a global investment destination. These measures and reforms are creating a more attractive investment climate for domestic and international investors alike and have attracted more than 100 major financial institutions to open accounts in the Kingdom.”
2017 was a groundbreaking year for Tadawul, which, in conjunction with the Capital Market Authority (CMA), implemented far-ranging reforms, including:
- Adoption of the IFRS accounting standard for all listed companies and the Global Industry Classification Standard (GICS) in January 2017 to enable comparability of corporates across markets and easier analysis of sector performance;
- Opening of the domestic IPO market to QFIs as of January 2017;
- Adoption of new corporate governance rules issued by CMA in February 2017 to enhance the rights of shareholders and board members and promote greater transparency;
- Launch of Nomu, a parallel equity market for Qualified Investors that offers lighter listing requirements and serves as an alternative platform for small and medium-sized enterprises to go public. Nomu was launched on February 26, 2017 and was opened to direct investment by non-resident foreign investors in January 1, 2018.
- Amending the settlement cycle to T+2 for all listed securities in April 2017 to increase the level of asset safety for investors and to unify settlement duration with global standards .
- Concurrent with implementation of T+2 settlement, introduction of a Delivery versus Payment Model (DvP), which ensures the delivery of securities occurs only if the corresponding payment occurs , and spin-off of the Securities Depository Center (SDC), bringing the Saudi market in line with most other major global markets.
- Introduction of securities borrowing and lending and covered short-selling to enhance the ease of trading and create new opportunities for local and global market participants. Tadawul is the first market in the region to offer Securities Borrowing and Lending and covered short selling for all listed stocks.
- Other significant measures included enhancements to the Market is the elimination of the cash pre-funding requirement for institutional investors.