RIYADH, 20 October 2007 — Saudi banks and stock brokers will reopen the more than 3.6 million investment portfolios this morning in order to exchange shares of 105 companies listed on the Saudi bourse. The portfolios were closed last week in preparation for shifting to the new exchange system.
The Capital Market Authority (CMA) stopped all financial dealings of these portfolios at the end of trading before Eid Al-Fitr holidays.
Market analysts said the new Tadawul system would increase daily transaction to two million from the current level of about 800,000. The new system makes it possible to introduce trading in products such as bonds and sukuk and to offer entirely new products such as exchange traded funds.
Thirteen Saudi commercial banks and eight brokers have changed portfolio management systems to match with the new Tadawul system. The last day of trading on the old system was Oct. 10 when the index grew by more than 100 points.
The CMA had also stopped depositing of share certificates and transfer of shares between portfolios until Oct. 23, 2007. Banks have reported that they would open new investment portfolios only three days after the launch of the new system.
The new system contains improved features that will facilitate the operation of the exchange and provide greater transparency. New data issued by Tadawul showed that investor confidence has yet to recover since the collapse in share prices last year.
Despite 20 new listings over the first three quarters of this year, and a similar number of share splits and rights issues increasing the number of shares available, the average daily volume of shares traded is down by nearly 19 percent compared to the same period last year.
Agriculture and insurance were the only sectors that experienced an increase in trading volumes over the first nine months of this year. Speculators favor both of these sectors, although the bulk of increase in the insurance sector can be accounted for by the new IPOs, it said.
Latest available data from Tadawul showed that its trading for the month until Oct. 1 registered a volume of 3,123,234,852 valued at SR148.51 billion, whereas the volume reached 11,030,576,531 with a value of SR515.96 billion in the latest quarterly results. In the last trading week before the market closed for the Eid holidays, transaction volume reached 435,442,177 with a cumulative value of SR20.05 billion.
Under the new system, three types of trading orders will be processed: Market, limit (at which the purchase or sale price is predetermined) and hidden. Hidden orders are orders that are so large that if they were conducted in one go, they would distort the market. Experts have said that the volume of investment funds in the Kingdom were still meager compared to the large market. They said investment funds in the US accounted for 60 percent of the stock market.
The CMA has licensed 80 investment companies and 50 of them have already obtained their licenses. But only 13 banks and six brokers are operating in the market. The number of investors in the market is estimated at 3.6 million including Saudis, other GCC citizens and expatriates.
The CMA carried out a series of technical tests for the new exchange system in cooperation with brokers and data providers in order to make sure that the system is working properly.