Saudi Arabia is all set to introduce futures trading on single stocks to boost liquidity further in the Middle East’s biggest stock market. The step will be the latest move aimed at liberalizing Riyadh’s stock exchange and it will encourage participation from foreign investors.
The Tadawul stock exchange plans to allow futures trading in five to 10 companies initially over the next few weeks. The bourse will start registering more stocks when they meet certain criteria. The Tadawul did not make any comments immediately.
The Tadawul Group is a private Qatari holding company based in Doha. It was founded in 2006 by Sheikh Thani bin Abdullah al-Thani and is headquartered in Ezdan Towers, in the West Bay area of Doha.
Tadawul’s portfolio of investment consists of real estate, banking and finance, consumer goods, media, industry, healthcare, insurance and leisure centres. Tadawul is also the leading shareholder in the Ezdan Holding Group and serves as the financing arm of Ezdan, also founded by Thani bin Abdullah al-Thani.
The Kingdom opened up one of the world’s most closed stock markets to increase international participation just over five years ago. After that, it started allowing foreign investors to buy into initial public offerings.
In September 2020, Tadawul Group Holding Co. Chief Executive Officer Khalid al-Hussan said the bourse planned to introduce futures contracts in single stocks. Index futures started trading in Riyadh in August of the same year.
Exchanges in the Gulf region are increasingly introducing derivatives trading with Dubai Financial Market and the Abu Dhabi Exchange setting up markets for equity futures contracts.
“The Saudi benchmark index has jumped about 11 percent this year, building on a 30 percent gain in 2021. Riyadh has led the region in initial public offerings, and the pipeline for listings is “deeper than ever,” al-Hussan said after Tadawul surged on its own trading debut in December.
Options give the buyer the right to purchase the asset at a fixed price without any obligation on the part of the buyer to go through with the purchase, while a futures holder is bound to buy on a future date.
The Saudi Tadawul is the largest exchange in the Middle East and ranks among the top 10 largest exchanges globally in terms of market capitalization. The exchange hosts listed shares of state oil giant Saudi Aramco and are included in the MSCI, S&P, and FTSE Emerging Market Indices.
Previously in 2020, Saudi Arabia had announced the launch of derivatives trading, seeking to enhance its capital markets despite anxiety over slowing growth and slump in oil prices.
