Recent and ongoing reforms of Saudi Arabia’s capital markets have seen the Kingdom gradually liberalise its investment framework and overhaul the operations of the Saudi Stock Exchange (Tadawul) – the largest exchange in the GCC by market capitalisation. These efforts were rewarded in 2017 when MSCI added Saudi Arabia to its Emerging Markets Index watch list, and again in June 2018 when the Kingdom was upgraded to emerging market status. This marked the fastest progression from watch list to emerging market status in the index’s history. In August 2019 the Tadawul completed the second and final step of its inclusion on the index, bringing the Kingdom’s weight to 2.8% of the index’s total market capitalisation. During this time, the Tadawul was also added to the FTSE Russell Emerging Markets Index and the S&P Dow Jones Emerging Market Indices. These milestones mark key steps towards the country’s goal of becoming an active player in the global financial community, as well as solidifying the Tadawul’s position as the GCC’s leading capital market.

Main Market

As of the first quarter of 2020 there were 199 companies listed on the main market of the Tadawul, an increase of nine on 2019. Equities are divided into 20 sectors or industry groups, as defined by the Global Industry Classification Standard: energy; materials; capital goods; commercial and professional services; transportation; consumer durables and apparel; consumer services; media; retail; food and staples retail; food and beverage; health care equipment and services; pharmaceuticals, biotech and life sciences; banking; diversified financials; insurance; telecommunications services; utilities; real estate investment trusts (REITs); and real estate management and development.

Equity trading accounts for the bulk of activity on the exchange, but over the past decade the platform has matured from a single-asset-class market to offer a wider array of instruments. This process began in 2010 with the addition of the Kingdom’s first exchange-traded fund (ETF), the Falcom Saudi Equity ETF. It has since been joined by the Falcom Petrochemical and HSBC Saudi 20 ETFs. By the end of 2018 their combined asset value stood at SR37.7m ($10.1m), an increase of 4.6% on 2017.

While the first REIT was listed on the exchange in 2016, it was the following year that the Capital Markets Authority (CMA), which oversees and regulates the market, approved a regulatory framework governing REITs, paving the way for rapid uptake of the instrument. As of end-2018 the Kingdom’s 16 REITs had accumulated an asset value of SR16.5bn ($4.4bn), up from SR3.6bn ($959.7m) the previous year. Further momentum was added to the expansion of REITs with the June 2019 inclusion of the Tadawul on the FTSE EPRA/Nareit Emerging Index, which helps align Saudi instruments with international best practices, as well as make them more accessible to foreign investors. “Local and foreign investor appetite has grown,” Tariq Al Sudairy, managing director and CEO of local investment firm Jadwa Investment, told OBG. “Most of the capital flows from international investors has been directed towards the Saudi public equity market as a result of being included in the emerging market indices of FTSE and MSCI.”

Adding to progress, in 2019 the Tadawul inaugurated its first tradeable index. The MSCI Tadawul 30 Index, or MT30, is composed of the 30 largest and most liquid securities listed on the equity market, based on free float market capitalisation. According to the exchange, the new index will serve as the basis of an index futures contract to be listed on the market, and can be licensed for other indexlinked financial instruments, including mutual funds, derivatives and exchange-traded products.

Parallel Market

The year 2017 saw the Tadawul and the CMA launch Saudi Arabia’s new parallel market, Nomu. Similar to moves enacted by other global markets, Nomu is designed to make it easier for growing firms to approach the market for funding by offering less exacting listing requirements. Listings are required to hold SR10m ($2.7m) in capital, compared to SR100m ($26.6m) for main market participants; they must have operated for at least one year, as opposed to three years; they have slightly longer to comply with disclosure requirements; and they must offer a minimum of 20% of their company as free float, rather than the standard 30%.

At the beginning of 2020 there were five listings on Nomu, down from 10 a year earlier. This decline is partly a result of the parallel board’s success in acting as a stepping stone to the main board: during November 2019 full-service restaurant company Raydan Food became the fourth firm to transition from Nomu to the main market. Attracting new listings and liquidity to the parallel board are strategic priorities for the exchange authorities.

Efforts to boost liquidity, however, are circumscribed by the fact that only certain qualified entities can invest in companies on Nomu – a measure intended to protect retail investors from the volatility usually associated with small- and mid-cap companies. Qualified entities include corporations, government-owned entities, GCC funds and companies, investment funds and discretionary portfolio managers, as well as large individual investors who meet a range of portfolio requirements.

In February 2019 Tadawul authorities announced a number of structural changes to Nomu aimed at making the platform more attractive to potential listings. These include provisions to allow companies to list directly without the need for an initial public offering (IPO), a move from quarterly to biannual reporting of financial results, and a streamlined process by which issuers can transition from the parallel market to the main market.

Debt Market

The Kingdom’s debt arena is one of the more interesting areas of the capital market scene. In 2017 the government made the decision to kick-start the Tadawul’s debt component by listing sovereign bonds and sukuk (Islamic bonds) on the exchange, thereby significantly expanding the number of secondary market instruments available to investors. As a result, sovereign offerings now dominate exchange-based debt trading: in early 2020, 69 of the 71 debt instruments listed on the Tadawul’s sukuk and sovereign bond index were either government development bonds or floating-rate debt instruments. In August 2019 the CMA, along with the Tadawul and the Debt Management Office, sought to further invigorate the bonds and sukuk market by overhauling its fees and commissions structure. The changes included listing fee reductions and lowering par values of government-issued sukuk from SR1m ($266,600) to SR1000 ($267).

Off the exchange, the government is also galvanising the wider debt market through its regular sovereign issuances. The Kingdom staged its first international bond sale in 2016, raising $17.5bn in a heavily oversubscribed offering. Another milestone was passed in 2017 with the issuance of Saudi Arabia’s first dollar-denominated sukuk – sold in two $4.5bn tranches with tenors of five and 10 years. Since then, the country has emerged as a major regional issuer of international debt. In 2019 the Kingdom offered $13.4bn of euro- and dollar-denominated bonds – more than any other emerging market aside from Turkey, according to Bloomberg. A $2.5bn sukuk issuance made later in the year was particularly significant, as it followed a September 2019 drone and missile attack on Saudi Aramco facilities that prompted Fitch Ratings to downgrade the Kingdom’s debt rating. A high level of demand meant that the offering was priced at 127 basis points more than the benchmark mid-swap rate, down from a forecast range of between 145 and 150 basis points. The deal therefore represented an important vote of confidence in the economy.

Future Issuances

Future sovereign issuances may be aided by Saudi Arabia’s 2019 inclusion on the JP Morgan Emerging Market Bond Index, where its approximate weight of 3.3% was the highest in the region. This is likely to spur greater inflows, resulting in tighter spreads and primary market access. A growing budget deficit means that the Kingdom is likely to continue to tap the debt markets in 2020 (see Economy chapter), with January 2020 seeing the issuance of the first Eurobond of the year, a $5bn offering that was heavily oversubscribed. The Ministry of Finance indicated at the time that the Kingdom planned to sell around $32bn worth of debt over the course of the year.

A rise in the number of local currency bonds, in particular, would result in a welcome strengthening of the yield curve by which corporate issuances are priced. Here again, the Kingdom has played a key role in the region over the past year: the $12bn inaugural bond from Aramco in April 2019 was one of the most oversubscribed issuances in history. Demand for the offering meant that, unusually, Aramco was able to borrow at a lower yield than its sovereign parent.


The global oil price decline that began in mid-2014 has had a negative impact on exchanges across the region, lowering trading volumes and pushing main indices into horizontal or negative trends. After a recent low of around 5400 points in January 2016, the movement of the Tadawul All Share Index (TASI) was broadly flat for the remainder of 2016 and into 2017. From 2018, however, firming oil prices and a strengthening economy resulted in a modest growth trend for the main index. The market hit a recent high of around 9360 points in May 2019, before retrenching slightly to consolidate around 8390 points at the end of the year, posting an annual gain of 7.2%. Total market capitalisation reached SR9.3trn ($2.5trn) by the close of 2019, indicating a 385.5% increase on the previous year. This sizeable gain was largely attributed to the December 2019 listing of Saudi Aramco. In terms of sectoral activity, consumer services showed the highest gain, with the sector’s index rising by 34.3% that year, followed by utilities (30.5%) and transportation (26.4%). The sectors which saw the most retrenchment were media and entertainment (-7.6%); pharmaceuticals, biotech and life sciences (-7.3%); and diversified financials (-5%).

While the market entered 2020 on a positive note, the global outbreak of the Covid-19 virus, combined with falling energy prices, undermined market sentiment in the first quarter of the year. By March 2020 the index was approaching the resistance level of 5600 points established in 2017.


The continued development of the exchange is overseen by the CMA, which was given a broad mandate by the Capital Markets Law of 2003. This includes the issuance of securities; the oversight of listing, trading and settlements; and the enforcement of regulations. The CMA and Tadawul authorities have set themselves the target of establishing the Tadawul as the main market of the Middle East and one of the top-10 financial markets in the world. The Financial Leadership Programme was established by the CMA in 2016, providing the roadmap to this goal. Its key objectives include developing the sukuk and debt instruments market, promoting the role of mutual funds in the economy, attracting foreign investment, diversifying product offerings, enhancing governance and the regulatory environment, and building the capabilities of capital market participants. Such efforts form part of a broader national strategy to boost the Kingdom’s standing as a regional and global financial centre, which is being pursued in accordance with the Financial Sector Development Programme – a principal component of Saudi Vision 2030 (see Economy chapter).

Foreign Investment

A key regulatory theme in recent years has been opening the exchange to greater foreign investment. This began when the Tadawul introduced its qualified foreign investor (QFI) model in 2015, granting direct access to the exchange to a limited cadre of foreign institutions, such as banks and brokerages. In 2018 it revised the framework to increase inflows by dropping the minimum asset value requirement from $1bn to $500m, raising the limit for a single QFI’s stake in one company from 5% to 10% and lifting the threshold for total foreign holdings in a listed entity to 49%. Early entrants into the market included some of the world’s most prominent asset management brands, including HSBC Bank, Ashmore Investment Management and Blackrock Fund Advisors. In the first six months of 2019 the number of QFIs increased from 453 to 1195, representing a rise of nearly 164%. This rapid expansion in activity brought the foreign ownership level on the exchange to 7%.

The CMA plans to build on this momentum. To that end, in June 2019 the regulator approved a new set of instructions aimed at individual strategic investors, rather than the financial institutions that formed the first phase of foreign investment. The new rules set no minimum or maximum investment limit, representing market liberalisation.

At the time of the decision, Mohammed El Kuwaiz, chairman of the CMA, said in a press release that “the CMA approved these instructions as part of opening the capital market and the Saudi economy to the outside world, as [the CMA has] noticed a growing interest from foreign strategic investors to invest in companies listed on the Saudi Stock Exchange”.

Next Phase

In January 2020 the CMA approved the Securities Central Counterparties Regulation, which aims to bring the Kingdom’s clearing framework in line with global best practices and open the door to new classes of securities, such as derivatives. Other recent reforms included an October 2019 decision to allow foreign issuers to list their shares on the main market; the revision of corporate governance regulations and some exchange procedures in line with the recently amended Companies Law; and the 2018 update of merger and acquisition rules.

The exchange has also taken steps to drive technological innovation. In January 2018 the CMA issued its Financial Technology Experimental Permit Instructions, establishing a regulatory framework for the nurturing of financial technology (fintech) on the capital markets. The first fintech licences were granted the following July to two companies trialling crowdfunding investment services. Technological innovation is emerging as a strategic differentiator for global markets keen to attract liquidity, making the CMA’s promotion of fintech a central component to deepening capital markets and creating new employment opportunities by supporting entrepreneurs. The potential impact of domestic- and foreign-sourced fintech products on market processes is significant.


The MENA IPO pipeline slowed in 2018 as global trade concerns, regulatory changes and regional politics weighed on business sentiment across the region. However, Saudi Arabia led the IPO arena in 2018 both in value and volume, raising nearly $1.5trn through 12 offerings. In 2019, six Saudi companies or funds staged IPOs, for a combined offering value of just over SR100bn ($26.7bn). This was due in large part to the long-anticipated flotation of Saudi Aramco – one of the world’s most profitable companies.

More than 20 multinational investment banks worked on the Aramco deal, including Goldman Sachs, JPM organ Chase & Co, Morgan Stanley and Citigroup. An attack on Aramco’s facilities in September 2019 pushed an initial October floatation date to the end of the year, and the offering’s final form saw the sale of less than 2% of the company on the domestic market, rather than the previously anticipated 5% on global platforms. Nevertheless, the IPO valued the company at $1.7trn and claimed the record for the world’s largest share offering. In February 2020 Aramco was reportedly making early preparations for an international listing, but unfavourable market conditions stemming from the worldwide outbreak of Covid-19 make a float on a global exchange unlikely in 2020.


Reform efforts by the regulator and the Tadawul continue to help the exchange meet performance targets. A number of milestones have already been passed, including boosting market capitalisation to 81% of GDP, increasing institutional investment participation to 19% of trading volume, and raising the number of small and medium-sized enterprises to 36% of listed companies. The increasing array of investment instruments is also attracting fresh capital. Looking to IPOs, the state’s privatisation programme – a central component of Vision 2030 – is likely to generate further activity over the medium term. Targeted sectors include the environment, water and agriculture, transport, energy, housing, education and health. However, the timetable of the privatisation programme, as well as the movement of the Tadawul’s main index, is likely to be adversely impacted by the Covid-19 outbreak that is expected to upend global markets far into 2020.