Tadawul plans to play a key role in the Kingdom’s economic transition vision
Tadawul, the Saudi Exchange, has rolled out its latest product in the derivatives market, the single stock options. It began training on the exchange at the start of this week.
This was announced at the Tadawul headquarters in Riyadh under the leadership of the body’s CEO, Mohammed Al-Rumaih, who mentioned the stock options introduction will help improve the liquidity in the market whilst providing an opportunity for investors to hedge their positions and minimise risks.
The launch body showcased their plans to introduce 100 more shares of the Wall Street-like physically settled options. They have shortlisted four such underlying assets, which are currently the most liquid stock listed on the exchange, comprising Saudi Telecom Co., SABIC, Al-Rajhi Bank, and Saudi Aramco.
Mazen Al-Sundairi, Head of Research at Al-Rajhi, said that the impact of derivatives on a nation’s economy has been thoroughly researched and studied from other foreign markets. He later shed light upon the Indian stock market, from which he drove out the connection between the introduction of derivatives and an increase in foreign direct investment (FDI).
He mentioned that after the introduction of derivatives in the year 2000, India witnessed a steady increase in FDI inflow. Over the course of two decades, their exchange welcomed more than $1 trillion in FDI.
Khalil Al-Abdulwahab, chief of business development at Muqassa, the clearing of the Saudi Stock Exchange, said that the standardised options contracts with an underlying individual stock as an asset stand separately amongst other derivative contracts in the exchange as they carry the function of physical settlement of the stock at maturity of the contract.
The stock market of any economy becomes an attractive avenue for international investors when it stands as a leading indicator of the overall health of the economy. The markets can become a leading indicator when they are diversified and offer a wide range of products for trading and investing activities. The markets also need to cover all the sectors instead of focusing on a few growing sectors or key economic elements.
As per some studies under Al-Sudairi, the more mature the market is, the better it represents the economy as an indicator and the better it can attract foreign investments.
He pointed out that the inclusion of global players in Tadawul, like index futures, has surged the share of qualified foreign investors to more than 6%. Still, their ownership percentage stands at only 2.7% in the market.
Elie Geagea, head of equity derivatives solutions at HSBC, said that the launch of single stock options (SSOs) will help the Kingdom achieve its global ambitions. She appreciated the efforts of Tadawul, mentioning that this launch is not an isolated event but years of work that has put the exchange in such a position to offer different products that are well aligned with the other international exchanges.
She pointed out that 15% ownership of the Saudi exchange is in the portfolio of foreign investors. HSBC, being a global bank, views Saudi Arabia as a medium to boost bilateral investment between the West and East.
The equity head added that improving bilateral investment can be accomplished, but it has to reduce a lot of risks, which can be minimised by the SSOs. Such contracts will enable other market participants to trade with enhanced risk management, which will attract more entities to trade and invest in Tadawul.
Tadawul plans to play a key role in the Kingdom’s economic transition vision. It aims to align itself with the financial sector development program under the umbrella of the Saudi Vision 2030.
The CEO of the Saudi Exchange said that more such products and offerings would be launched in the future to diversify investment opportunities inside the exchange so that market participants can explore avenues to trade and invest in increasing their portfolio.