Saudi Arabia's Tadawul to begin derivatives trading from next month

The biggest Arab bourse will launch an exchange-traded index futures contract on August 30 and will roll out more products, CEO says

Amlak International for Real Estate Finance, listed on Tadawul stock exchange reported a 21 per cent increase in its second-quarter net profit. Reuters

Saudi Arabia’s Tadawul stock exchange will allow trading in derivatives next month, as the Arab world’s biggest bourse looks to broaden its product offerings to increase liquidity and attract more foreign direct investment.

The first exchange-traded product will be the Saudi Futures 30 index futures contract, which is based on the MSCI Tadawul 30 index. Trading in the contract will begin from August 30, Khalid Al Hussan, chief executive of Tadawul, told a virtual press conference on Tuesday. The new product has drawn the attention of institutional investors and will prove attractive to international funds, he said.

“Today, we believe we have announced a key milestone in the development of the Saudi market,” Mr Al Hussan said. “We have confirmed our commitment to develop [the] market.”

Saudi Arabia’s capital market has witnessed “rapid changes” to increase its depth, including the introduction of an independent clearing house, known as Muqassa, paving the way for derivatives trading. The clearing house will also begin operations on August 30, a separate statement issued on Tuesday said.

Tadawul has gone through several other regulatory and market infrastructure changes to attract listings and bring more foreign direct investment to the country, a key pillar of Saudi Arabia’s economic diversification agenda. The initial public offering of state-owned oil company Saudi Aramco, the world’s biggest listed firm, last year propelled the exchange into the top 10 stock markets, according to its annual report.

Tadawul, which has postponed plans to list its own shares, represented 76 per cent of total market capitalisation of the Middle East and North Africa region at the end of the last year. Its benchmark Tadawul All Share Index, however, has fallen 12 per cent this year amid the Covid-19-induced economic slowdown.

“Today, we can proudly say that our capital market is not only the largest in the region but also developing faster than most exchanges in terms of both the products and the services we offer,” Mr Al Hussan said.

Tadawul becomes the second exchange in the region to offer derivatives trading after the Nasdaq Dubai. Once its index futures contract is rolled out, it plans to launch more products such as single stock futures, single stock options, and index options, allowing investors to expand their exposure to Saudi equities.

The bourse is also considering rolling out commodities futures to expand its derivatives market, the chief executive said.

“We are looking at commodities as we speak. We are determining the appropriate commodities to be launched in the Saudi market … it is part of our ongoing development [initiatives],” he said, without giving a timeline as to when the exchange would launch the product.

“Index futures is the best derivatives product to be introduced in our market because it is much easier for people to understand and get familiar with complications [involved] in trading derivatives. We will continue to add more products as the market and the region demand from us,” he said.