Saudi Arabia to begin Derivatives Trade at Tadawul soon

By Rahul Vaimal, Associate Editor
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Tadawul Saudi Arabia's Stock Exchange
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Saudi Arabia’s stock exchange Tadawul is expected to start trading in derivative products at the beginning of next month in a bid to make the floor more attractive to foreign investors.

Derivatives trading is the trading mechanism in which the traders enter into an agreement to trade at a future date or at a certain price, after understanding what the future value of the underlying asset of the derivative is expected to be. It is a common mode of trading in many of the world’s biggest stock exchanges but is quite rare in the Middle East.

The CEO of Tadawul, Khalid Al Hassan, said the move was “further evidence of our commitment to providing our investors with diversified, innovative products and services to meet all their needs.”

Tadawul said that the first derivative planned for trading, the Saudi Futures 30 (SF30) Index Futures Contract based on the MSCI Tadawul 30 index would give investors hedging tools and more opportunities to gain exposure to the Saudi capital market. More sophisticated financial instruments will be gradually introduced later.

Saudi authorities have introduced several reforms to attract overseas share buyers and issuers to attract foreign capital and diversify away from the oil-dependent economy. In 2019, the Saudi market joined the FTSE Emerging All Cap Index and the MSCI Emerging Markets Index, triggering more foreign fund inflows.

Tadawul’s CEO noted that the outbreak of the novel coronavirus had not significantly affected trading on the Saudi stock market, with volumes higher than last year. The benchmark stock index is down 12 percent this year as the Saudi economy has been hurt by lockdowns imposed after the virus outbreak and a slump in oil prices.