Tadawul plans to introduce derivatives and ETFs

Saudi Arabia is considering to introduce derivatives and other sophisticated investment tools into its bourse as part of an overall strategy to develop the market and encourage citizens to invest at home.

Tadawul, the largest and busiest bourse in the Middle East, said it is also pondering introducing exchange-traded funds (ETF) and taking further measures to boost transparency and ensure all listed firms comply with governance rules.

The Gulf Kingdoms Capital Market Authority (CMA), which oversees the Riyadh-based Tadawul, said the new plans are part of a development strategy aimed at "ensuring disciplined and fair dealing in the bourse."

"As part of CMAs efforts to achieve its strategic objectives to encourage citizens to invest in the local bourse and develop the market with the aim of safeguarding financial stability in the country, CMA is pushing ahead with its plans in 2009 to complete what it started before and introduce new tools," it said.

"CMA is planning to take a series of measures to realise those objectives while it will study the introduction of new investment instruments into Tadawul, including ETFs and Swaps….another study will be conducted this year to evaluate the introduction of derivatives, options and over-the-counter trade."

In a statement about its 2008 achievements and plans for 2009 published on its website, CMA also said it was considering the establishment of an autonomous department to "monitor compliance of listed companies with CMA rules concerning the application of governance in the bourse". Saudi Arabia could be the second Gulf nation to introduce derivatives and ETFs into its bourses as the UAE has such plans. The Abu Dhabi Securities Exchange is about to launch ETFs owned by some local banks while derivatives are expected to be introduced before the end of 2009.

CMAs plans are the latest in a series of measures it took in 2008 to organise its bourse, including allowing foreigners to trade in Saudi shares through local dealers. Another decision involved displaying the names of major shareholders who own at least five per cent of listed companies.

"CMA will not stop at those goals…it will continue work to develop the market, protect investors against market risks and enhance transparency and disclosures, and ensure right and fair trading," the statement said.

Tadawul is the largest and most speculative bourse in the Middle East, with its market capitalisation accounting for nearly 33 per cent of the total Arab market capitalisation at the end of March although its listed firms account for only around eight per cent of the total Arab listed companies. Turnover in Tadawul, or the value of traded shares, also exceeded half the total Arab traded shares in March.

Like other Gulf bourses, Tadawul has severely suffered from the global financial crisis, plunging to one of its lowest levels at the end of 2008.

Official figures showed that since the start of 2008, Tadawuls market capitalisation plunged by a staggering $266 billion from around $518bn on January 1, 2008 to nearly $252bn on April 15.