DUBAI: Tadawul, the Saudi Arabian stock exchange, is to launch trading in derivative products at the beginning of next month in a bid to further enhance growth of the Kingdom’s capital markets.
Khalid Al Hussan, chief executive of Tadawul, said the move was “further evidence of our commitment to providing our investors with diversified, innovative products and services to meet all their needs.”
The first derivative that will be traded will be an index futures product, the Saudi Futures 30, based on the MSCI Tadawul 30 index launched last year. Other sophisticated financial instruments will be gradually introduced, Al Hussan said.
“Today, we can proudly say that our capital market is not only the largest in the region but also developing faster than most exchanges in terms of both the products and the services we offer,” he added.
Derivatives trading is common in many of the world’s biggest stock exchanges, but is rare in the Middle East.
Derivatives traders deal in comparatively complicated instruments like futures, options and swaps which allow them to hedge equity trading risk, expand investment opportunities and enhance liquidity.
Al Hussan acknowledged that they do, however, introduce their own element of risk, compared with traditional equity trading.
“That is why we did not launch derivatives products before the full operation of our clearing house, which will act as an intermediary between sellers and buyers.
“We believe that the regulations and the procedures of Muqassa (the securities clearing centre) that are in place today are there to protect, or at least to manage, these types of risks,” he said.
He added that Tadawul had launched an education program for investors in the new products, especially for retail investors, who would be able to experience real-time simulated trading in derivatives via a training program.
The derivatives launch is part of the Financial Sector Development Program initiative of the Vision 2030 strategy to diversify the economy away from oil dependency.
“It is a significant step in introducing sophisticated market products and creating a trading environment attractive to local as well as international headers and traders,” Al Hussian said.
The move was welcomed by professional investors. Tarek Fadlallah, chief executive of Dubai-based Nomura Asset Management, told Arab News: “This is a major milestone in the development of the Saudi capital markets. It is likely to encourage greater participation by both local and foreign institutional investors.”