Table of Contents
Introduction
The Saudi Stock Exchange, aka Tadawul, is the biggest in the Middle East and North Africa. It has a market cap of $554 billion! It provides domestic and international investors various services, such as equities, derivatives, mutual funds, and bonds. Tadawul was formed in 2007. It is now a vital source of capital for many regional companies.
This article takes a closer look at the history of Tadawul and its effects on the Saudi economy.
Overview of the Saudi Stock Exchange
Tadawul is the Middle East’s first and largest stock exchange. Established in 2007, it plays a vital role in investors’ portfolios. It is regulated by the Capital Market Authority of Saudi Arabia, responsible for monitoring, controlling, and encouraging its development.
Tadawul offers a transparent market for companies to raise money and retail investors to buy equities. It also provides a platform for trading shares listed on Tadawul and managing records of brokers, dealers, and portfolio managers.
Tadawul consists of two markets: the Primary Market for new securities; and the Secondary Market for trading existing securities for cash or other securities – by brokers authorized by Tadawul. There are over 200 listed companies and 16 listed real estate investment trusts (REITs). Plus, many mutual funds through asset management companies trade on the Tadawul exchange.
Trading on Tadawul has been on the rise recently. Between 2015–2018, trading volumes multiplied four times due to growing demand from domestic and international investors – who began investing in Saudi Arabia after its inclusion in MSCI’s Emerging Markets Index.
History
The Saudi Stock Exchange, known as Tadawul, was formed in 2007. It is the only body that regulates and oversees the Saudi capital markets. In 2016, Tadawul joined the World Federation of Exchanges (WFE). After joining, it became the biggest exchange in the Middle East and North Africa.
This article sheds light on the exchange’s background and how it has developed since its creation.
Established in 2007
In 2007, the Saudi Stock Exchange (Tadawul) was created as a public business under Saudi Arabian law. It was formed by merging regional stock markets, at first just Riyadh, Dammam, and Jeddah. Alkhobar and Jubail were then included in 2009 and 2011, respectively.
By 2008, Tadawul had 254 firms listed with a market value surpassing $290 billion. In 2009, it became part of the Federation of Euro-Asian Stock Exchanges (FEAS). Then, the following year, it advanced to the World Federation of Exchanges (WFE) member.
Since its formation, Tadawul has been continually improving to be one of the most developed exchanges in emerging markets. Nevertheless, according to S&P Dow Jones Indices, it is 11th out of 22 international peers for liquidity. To further develop, Tadawul has outlined a roadmap to reach global standards for ownership concentration and corporate governance regulations. As a result, it should boost investor confidence in the GCC region.
Expansion of the Saudi Stock Exchange
Tadawul, the Saudi stock exchange, was officially set up in March 2007. It was due to the Capital Market Authority (CMA) passing a law to create a regulatory framework for the stock exchange industry in Saudi Arabia.
At first, sixty-one listed companies had US$100 billion in capitalization. In 2020, it had over 222 listed companies with US$600 billion in capitalization.
The government has been doing many public initiatives to make Tadawul better. For example, they modernized the infrastructure and developed new products. They also changed listing requirements and foreign ownership limits. Global companies like the Tadawul All Share Index (TASI) were created to help create an international community that trades on electronic trading system online platforms.
The changes have been effective. Tadawul is now one of the largest capital markets in the region. Investors, both local and international, have been getting good returns. It has an extensive portfolio, reasonable regulations, and is accessible. As a result, it is an excellent platform for investors looking for long-term stability.
Initial Public Offerings (IPOs)
Tadawul, the Saudi Stock Exchange, witnessed a surge in Initial Public Offerings (IPOs) over the past decade. Seven IPOs were made in 2006, yet only two in 2007. Over the years, IPOs gradually increased, reaching eight in 2011 and nine in 2015. An astounding 24 IPOs were made in 2017, raising a total of SAR 10 billion – the highest amongst Middle Eastern exchanges, according to Dealogic.
In 2018, Tadawul listed six securities through five distinct IPOs. Combined, these five companies raised 5.2 billion Saudi riyals ($1.39 billion). Of these, Alamoudi Exchange Company for Investment and Trading by Fawaz Ahmad al-Alamoudi was the largest and most successful, with a capital increase of 3.25 billion Saudi riyals ($867 million).
The steady rise in IPOs on Tadawul implies that Saudi Arabia still provides investment opportunities on its stock exchange, despite low oil prices and a bearish market sentiment across the region. Moreover, it bodes well for the Kingdom’s developing capital markets agenda, as investors consider it a lucrative investment market due to increasing transparency and liquidity compared to other Middle East markets, such as Kuwait or Bahrain.
Regulations
The Saudi Stock Exchange (Tadawul) follows regulations set by the Capital Market Authority (CMA) of Saudi Arabia. These rules help keep the stock market transparent and efficient. Before opening a trading account, there are various requirements to meet. Let’s look at the regulations which control the Saudi Tadawul:
The Regulatory Body of the Saudi Stock Exchange
The Saudi Stock Exchange (Tadawul) is the only securities exchange in the Kingdom of Saudi Arabia, located in Riyadh. The Capital Market Authority (CMA) regulates it. Established in 2003, the CMA supervises and governs the Saudi financial sector. It consists of representatives from many government ministries and helps companies wanting to list on the stock exchange.
The CMA makes sure that companies meet their disclosure standards. It also monitors for insider trading, manipulation of markets, and fraudulent activities. Tadawul operates an Online Trading System (OTS) for investments outside specific sectors or transactions. The OTS helps investors outside of Saudi Arabia access stocks on Tadawul. It lets trading partners from within the Kingdom access directly without needing a broker. Tadawul’s Surveillance Unit monitors all activities to ensure compliance with local and international law.
Investment Regulations
Investment regulations are laws, rules, and guidelines that set investment restrictions and boundaries. They help protect investors from potential financial losses and manipulation by companies or individuals controlling the investments. The regulations also limit the products and services an investing organization can provide. They protect against fraud, inform investors of investment terms, help resolve disputes, and ensure industry participants meet regulatory requirements.
The investment regulations vary in each country. Generally, they require the following:
- Registration of financial firms with the regulator;
- Disclosure of information on financial products;
- Protective codes of conduct and record-keeping guidelines;
- Disclosure of fees;
- Disclosure of conflicts of interest between investment parties;
- Margin deposits when investing in securities markets;
- Regulations on insider trading and manipulation; and
- Licensing requirements for advisors or portfolio managers receiving the commission.
Listing Regulations
The Saudi Stock Exchange (Tadawul) has established regulations for listed companies and their investors. These rules are to create a transparent and efficient market.
Companies must have authorization by law and financial reports according to international accounting standards.
The regulations include the following:
- Informing of the company’s background, operations, products, markets, competitive conditions, and objectives.
- Revealing financial statements and annual reports of each period, as well as shareholder base structure and the number of shares traded.
- Announcing board meetings, board members or significant shareholders changes, and corporate actions concerning share capital.
- Notifying terms of contracts between related parties, which shall not exceed 5% of total assets of listed company funds.
- Reporting stock repurchases and dividends before implementation, with no more than 20 days delay from the announcement.
In addition, Tadawul listed companies must comply with applicable securities laws, insider trading laws, takeover regulations, public disclosure rules, capital market activities laws, settlement procedures laws, margin finance laws, market manipulation laws, asset-backed securities laws, and corporate governance obligations under local stock exchange regulations.
Trading
The Saudi Stock Exchange, or Tadawul, has been a crucial part of Saudi Arabia’s trading since 2007. It works online, so foreign and domestic investors can buy shares of listed companies.
Let’s see how trading on the Saudi Stock Exchange works in this piece. First, we’ll have a look at the various order types and services available:
Trading Hours
Financial markets worldwide have diverse trading hours, depending on the type of security being dealt with and the market’s location. For example, equity markets are usually open during business hours, while currencies, commodities, and derivatives have longer trading periods.
Time schedules of markets vary based on time zone differences. Bond markets open earlier than stock markets and close earlier due to lower volatility. Futures exchanges in Europe have truncated or delayed opening times due to London time bond trading.
Equity and foreign exchange markets may also have different opening and closing times based on regional holidays.
Traders need to be aware of local trading times when making strategies. Planning trades helps to take advantage of international market movements or avoid unwelcome price risks caused by server downtime.
Trading Platforms
The Saudi Stock Exchange works with two trading platforms: the Automated Trading System (ATS) and the Order-Driven Trading System (ODS).
- ATS is an electronic system that allows direct online trading between brokers and investors. It is used for large trades with high volumes.
- ODS lets investors submit bids and offers through brokers. This system deals with small orders and trades in smaller volumes.
Both platforms ensure trading is safe, efficient, and cost-effective. All executed transactions are handled by the Clearing House of the Saudi Stock Exchange (CHSASE). In addition, CHSASE monitors pre-trade risks and post-trade risks based on Tadawul’s guidelines.
Trading Fees
Tadawul, the Saudi Stock Exchange, has fees and taxes for trade through its platforms. The Fee Schedule outlines the costs and payment methods.
- Trading Commission (TC) is 0.27% of the market value and a max of 1 million SAR ($266K).
- Settlement Service Fees (SSF) are 0.075% for buyers and 0.135% for sellers.
- Institutional investors with 200 times or more turnover in any stock during the same quarter can get relaxed fees if their brokerages approve.
- Regulatory Fee (RF) is a minimum of 500 SAR ($133) + a max of 5,000 SAR ($1,330) for buyers, 1% on profit before taxation, maximum of 5,000 SAR ($1,330) for sellers.
- Stamp Duty depends on company sector categorization published by CMA, ranging from 0-2%. This fee applies to buyers and sellers when transactions settle within 14 days post-trade date. The exact calculation depends on applicable exemptions and CMA’s published fee schedule.
Conclusion
To sum up, the Saudi Stock Exchange is ever-changing. It’s grown a lot both inside the country and in other places. Now it’s the biggest exchange in the Middle East and North Africa. Its total market capitalization is SAR 2.14 trillion.
It offers investors and traders many products and services, like equities, derivatives, ETFs, and bonds. Moreover, the Tadawul draws in international investors with reasonable rules and regulations, plus the chance to list on global indices.
Although investing in the Middle East has difficulties, the Tadawul is still an excellent exchange for diversifying portfolios.
Summary of Saudi Stock Exchange
Tadawul, also known as the Saudi Stock Exchange, is one of the largest stock exchanges in the Middle East. It was created in 2008 to become a centralized market for Saudi Arabia. Trading on Tadawul includes equities and derivatives, along with ETFs and REITs. The primary currency used is the Saudi Riyal, and major indexes include the SABIC 30, Al Mazad 30, and HSBC MENA 100 Indexes.
In recent years, Tadawul has opened to foreign investors. In addition, reforms have been implemented to improve transparency and encourage international participation. These reforms include joining the World Federation of Exchanges, automating its systems, and changing listing criteria to meet international standards. Tadawul also works with legal firms to offer advice to new issuers.
Tadawul has grown since 2008 to become one of the leading stock exchanges in the world. It provides domestic and international investors services and has worked with legal advisors to simplify listing procedures. Tadawul is committed to technological advancement and is expected to continue developing as a global financial hub.
