Saudi bourse may be ‘ready’ for futures, options in 24 mths

Part of ongoing reforms

RIYADH, April 25, (RTRS): Saudi Arabia’s stock exchange should be ready to introduce equity futures and options in about 24 months, after it completes reforms to help it manage the risks of such products, the exchange’s chief executive Khalid al-Hussan said.

Futures and options would provide hedging tools for the foreign institutional investors that are expected to enter Saudi Arabia with the listing of national oil giant Saudi Aramco, expected next year, and with the market’s entry into MSCI’s emerging market index, which may occur in mid-2019.

It is part of the rapid growth of the exchange, the Arab world’s largest with a capitalisation of $436 billion, about two-thirds the size of leading emerging market Moscow’s, but counting.

One necessary reform was launched on Sunday, when the exchange moved from same-day settlement of trades to settlement within two working days of execution. It also allowed covered shortselling of stocks.

In addition, the exchange is in the process of setting up a clearing house, which will be at the centre of managing trading risks, and replacing its back-office technology, also vital to handle equity derivatives, Hussan said.

“It is very important to look at the size of the Saudi capital market, and the risk associated with such size, so we have to have all controls in place before we think about introducing” equity derivatives, he said.

“So I would say our plan is to look at this in the next 24 months, so everything is in place within that window.”

The Saudi stock market looks set for even more growth in coming years partly because of a government reform programme launched last year to diversify the Saudi economy beyond oil by 2030.

The programme includes privatisations, and these are likely to result in around 100 new stock market listings in sectors including mining, healthcare and retail, HSBC’s chief executive for the Middle East said last week. Close to 180 companies are currently listed on the Saudi exchange.

Sarah Al-Suhaimi, chair of the exchange and also chief executive of local investment bank NCB Capital, said investment banking activity in the country had been increasing since last year because of preparations for privatisation.