Interview: Khalid Al Hussan

In terms of trade volumes, how has Saudi Aramco’s initial public offering (IPO) affected the market?

KHALID AL HUSSAN: The Saudi Aramco listing marked a significant milestone in the history of the Kingdom’s capital market and bolstered our position among international stock exchanges, with Tadawul becoming one of the top-10 largest stock exchanges in the world by market capitalisation. Being chosen as the venue for the largest IPO in history was a great source of pride, and the successful listing was testament to the effective collaboration between Tadawul, Saudi Aramco and the Capital Market Authority.

Since 2018 Tadawul has delivered market capacity and trading system upgrades to accommodate the significant increase in trading activity. The exchange has also introduced a number of measures to broaden the range of local and foreign investors participating in the market, and launched new products such as exchange-traded funds (ETFs) and index futures. These developments have strengthened our position as the most liquid market in the Middle East, with the daily average value of shares traded in 2019 reaching $938m.

To what extent has Saudi Arabia’s inclusion in the MSCI Emerging Markets Index helped to increase the Kingdom’s foreign equity flows?

AL HUSSAN: The Kingdom’s upgrade to emerging market status in 2019 by all three of the world’s largest index providers – MSCI, S&P Dow Jones Indices and FTSE Russell – indicates growing confidence in the Saudi market. The move also reflects Tadawul’s continued commitment to enhancing the effectiveness of the capital market, creating an attractive environment for local and foreign investors, and aligning its regulatory frameworks with international best practices. The upgrades were accompanied by a record buying of Saudi shares by investors from around the world, which will help to achieve the objectives of Vision 2030 and make Tadawul more accessible to foreign investors.

Has the qualified foreign investor (QFI) programme broadened investor participation?

AL HUSSAN: We have seen great success with our QFI programme, which has welcomed more than 2000 international financial institutions since its inception. We amended the programme in 2018 to ease registration requirements and, as a result, expanded the range of eligible institutional investors. The number of QFIs has increased by over 202% since February 2019, and we are seeing an average of 49 new QFIs register each month. Foreign participation in the market has increased along with registrations, with QFI buy and sell activity valued at $693m as of February 2020. Foreign ownership now represents 1.5% of Tadawul’s total market capitalisation and is currently valued at $32.9bn.

How are derivatives products helping to broaden investors’ exposure and mitigate risks?

AL HUSSAN: The launch of derivatives trading is part of Tadawul’s strategy to provide investors with a diversified range of investment products and services. It is a key initiative of the Financial Sector Development Programme, a pillar of Vision 2030. Recent market developments, including the Kingdom’s inclusion in major international indexes and the creation of the MSCI Tadawul 30 Index, indicate that the time is right to introduce derivatives trading. The first derivatives product launched was the MSCI Tadawul 30 Index futures contracts, which provides investors with hedging tools to more effectively manage risk and leverage greater opportunities to gain exposure to the Saudi market.

We believe that an advanced capital market requires a broad range of investment products. As such, we recently launched the Kingdom’s first ETF, backed by an underlying sukuk (sharia-compliant bond). We are the first exchange in the region to launch such an ETF, as well as the first emerging market exchange. Interest in ETFs continues to rise, with the total value of the instrument traded on Tadawul growing by 32.2% in 2019.