Tadawul launches derivatives trading

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.” (Supplied)
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Updated 14 July 2020

Tadawul launches derivatives trading

  • It is part of the Financial Sector Development Program initiative of the Vision 2030 strategy to diversify the economy
  • Derivatives trading is common in many of the world’s biggest stock exchanges, but is rare in the Middle East

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.”


Oil giants’ production cuts come to 1m bpd as they post massive write-downs

Updated 10 August 2020

Oil giants’ production cuts come to 1m bpd as they post massive write-downs

  • Crude output worldwide dropped sharply after the market crashed in April

LONDON: The world’s five largest oil companies collectively cut the value of their assets by nearly $50 billion in the second quarter, and slashed production rates as the coronavirus pandemic caused a drastic fall in fuel prices and demand.

The dramatic reductions in asset valuations and decline in output show the depth of the pain in the second quarter. Fuel demand at one point was down by more than 30 percent worldwide.

Several executives said they took massive write-downs because they expect demand to remain impaired for several more quarters as people travel less and use less fuel due to the ongoing global pandemic.

Of those five companies, only Exxon Mobil did not book sizeable impairments. But an ongoing reevaluation of its plans could lead to a “significant portion” of its assets being impaired, it reported, and signal the elimination of 20 percent or 4.4 billion barrels of its oil and gas reserves.

By contrast, BP took a $17 billion hit. It said it plans to recenter its spending in coming years around renewables and less on oil and natural gas.

Weak demand means oil producers must revisit business plans, said Lee Maginniss, managing director at consultants Alarez & Marsal. He said the goal should be to pump only what generates cash in excess of overhead costs.

“It’s low-cost production mode through the end of 2021 for sure, and to 2022 to the extent there are new development plans being contemplated,” Maginniss said.

London-based BP has previously said it plans to cut its overall output by roughly 1 million barrels of oil equivalent (BOEPD) by the end of 2030 from its current 3.6 million BOEPD.

Of the five, Exxon is the largest producer, with daily output of 3.64 million BOEPD, but its production dropped 408,000 BOEPD between the first and second quarters. The five majors, which include Chevron Corp, Royal Dutch Shell and Total SA, also cut capital expenditures by a combined $25 billion between the quarters.

Crude output worldwide dropped sharply after the market crashed in April. The Organization of the Petroleum Exporting Countries agreed to cut output by nearly 10 million barrels a day to balance out supply and demand in the market.