The Saudi stock exchange (Tadawul) is the only stock market in the GCC (Gulf Cooperation Council) region; it is also the largest bourse in the Middle East and North Africa. The market offers a number of opportunities for investors, both local and international. In addition to listing a great number of reputable companies from across the globe, Tadawul gives access to small-cap stocks that are not listed on other exchanges.
A brief history
The origin of the Saudi Stock Exchange goes back to 1954 when it began trading informally. In 1984 the securities market became officially regulated, and by 2003 the Saudi Capital Markets Authority, the current regulator, was formed. Up until 2008, direct ownership of Saudi stocks was only available to residents of the Gulf Cooperation Council countries. Things changed in 2015 when the Tadawul trading centre opened its doors to Qualified Foreign Investors (QFI). Things got kicked up a notch in 2017 when the Saudi Stock Exchange started to employ Nasdaq post-trading technologies and practices. This meant that the exchange could now accommodate more complicated products such as derivatives. The world’s biggest oil producer, Saudi Aramco, availed its IPO in 2019, in what was at the time the largest launch of its kind. After its launch, foreign issuers were given permission to get listed on the Saudi Stock Exchange and Tadawul gained membership to the FTSE Global Equity Index Series in the form of a secondary emerging market. Subsequently, Saudi Aramco was surpassed by Apple in 2020 as the world’s largest listed company. Apple’s listing on the Saudi Stock Exchange in conjunction with more adjustable rules for foreign investors has resulted in the Tadawul trading center becoming a major driving force amongst the exchanges of the world, right up there with the London Exchange and FTSE 100 index markets.
Products on the Saudi Stock Exchange
- Stocks: The Saudi Stock Exchange is home to 203 publicly traded companies and investors can trade stocks in all these companies.
- Derivatives: Quite recently, the Tadawul trading exchange unveiled its very first derivatives product, designed to track the MT30 Index, which represents the 30 largest and most liquid securities listed in the Saudi equity market.
- Exchange-Traded Funds (ETFs): EFTs are investment funds that chart and track a specific asset group or index and can be traded on a stock exchange. Foreign and local investors are privy to an EFT that follows the MT30 Index.
- Negotiated Trades: Through these financial instruments, buyers and sellers independently reach an agreement on the trade regarding price and amount. There are certain restrictions regarding volume and price in place for the purposes of market regulation.
Who can trade on the Saudi Stock Exchange?
The Saudi Stock Exchange employs stringent rules regarding who can trade. In terms of those who can own, buy and sell stocks on the Tadawul trading center, the practice is exclusive to residents of countries in the Gulf Cooperation Council, and this includes the UAE, Bahrain, Oman, Qatar, Kuwait, and Saudi Arabia. Nationals are also allowed to own, buy and sell a stock, and all interested parties must have a Saudi bank account. Foreigners not residing in these countries are not allowed to trade stocks directly. Foreign institutions on the other hand can apply to the Qualified Foreign Investor (QFI) program in order to trade on the Saudi Stock Exchange. Membership for such institutions requires a minimum of $500 in assets under management. Institutions that have a qualified numbers above 1,500 and include brokerage firms, investment funds, and banks.