Arab News, Tues, Nov 28, 2023 | Jumada Al-Uola 14, 1445
Single stock options launched on Saudi Exchange
RIYADH:
Saudi Exchange has officially launched single stock options, the newest
offering in its derivatives market, with trading beginning on the morning of
Nov. 27.
In an event inaugurating the launch at the Tadawul headquarters in Riyadh,
the CEO of the body, Mohammed Al-Rumaih, outlined that this introduction to
the market will serve to increase liquidity within the exchange, providing
an opportunity for investors to diversify their portfolios while
simultaneously mitigating risk.
The body disclosed its plan to introduce 100 shares of US-style, physically
settled options, with four underlying assets selected from the biggest and
most liquid companies on the exchange, which include Saudi Telecom Co.,
SABIC, Al-Rajhi Bank, and Saudi Aramco.
As standard option contracts with an individual stock as an underlying
asset, options “stand out to other derivatives offerings in the market as
they entail the physical settlement of the stock at the end of the
contract,” Khalil Al-Abdulwahab, chief of business development at Muqassa,
said during his address at the event.
The effect of derivatives on a nation’s economy has been evident and studied
through international markets, the Head of Research at Al-Rajhi, Mazen Al-Sudairi,
told attendees.
Highlighting the Indian market as an example, Al-Sudairi underscored the
correlation between the introduction of derivatives and the surge in foreign
direct investment.
Emphasizing that India adopted derivatives in 2000, he noted that from 2000
to 2019, the country experienced a consistent and robust growth in FDIs,
amounting to $1 trillion.
According to Al-Sudairi, this is due to the fact that markets “do not become
attractive for international investors until they become developed and have
the attributes of a leading indicator or proactive indicator for the
economy.”
For a market to become a leading indicator, it must be diverse, and offer a
range of products rather than focusing on a specific sector.
It must also reflect the economy in all sectors, changes, and growth rather
than depend on one sole economic element.
Thus, the new offerings by Tadawul serve to propel the Saudi markets to a
higher level of sophistication, making them inherently more attractive, the
head of research outlined.
Al-Sudairi said: “The more developed the market, the more it becomes a
leading indicator, the more attractive it will become for the international
investor. If it reaches this, it will be an indicator for the nation’s
economy as a whole, demonstrating the changes it is undergoing.”
He further noted that within Tadawul itself, the inclusion of global
indicators to the Exchange, such as index futures, has increased the
percentage of qualified foreign investors by over 6 percent, despite the
fact that their ownership in the market represents only about 2.7 percent.
As it stands, most foreign investors within the Saudi Exchange are not
active, acting as mere observers of the indices. Therefore, the introduction
of derivative products will aid in increasing the number of active foreign
investors, according to Al-Sudairi, due to the newfound ability to mitigate
risk, which will gradually increase liquidity in the derivatives market.
Hossam Badr, chief operating officer at Derayah, echoed these notions while
speaking alongside Al-Sudairi, adding: “The launch of single stock options
in the Kingdom will attract a group of investors who are seeking risk
mitigating and hedging tools, adding more trust for institutional investors
and increasing the amount of liquidity in the market.”
Elie Geagea, head of equity derivatives solutions at HSBC, further noted
that this step taken by Tadawul will serve to align the Kingdom’s exchange
with global practices, saying:
“Launching SSOs today is not an isolated event, from the past few years to
today, various steps have been taken by Tadawul to provide a basket of
solutions and offerings that are comprehensive and complementary to each
other aligning with the offerings of global exchange markets.”
Geagea highlighted that 15 percent of stocks on the Saudi Exchange are
currently owned by foreign investors, underscoring that as a global bank,
HSBC sees the Saudi market as a strategic one and aims to position itself to
facilitate growth in bilateral investment between East and West.
However, for this to be fulfilled, the bank requires a certain level of risk
mitigation, a hindrance that the launch of single stock options will be able
to reduce, the head of equity added. Through offering these contracts on
their platform, Tadawul facilitates institutions to trade in the market with
increased ease and a reduced level of risk, thus encouraging more
institutions to trade or invest in the Saudi Exchange.
According to its CEO, Tadawul seeks to play a pivotal role in the
comprehensive transformation that the Kingdom is witnessing and aims to aid
and align itself with the financial sector development program within the
agenda of the Kingdom’s Vision 2030 goals.
Looking to the future, the CEO concluded that Tadawul will continue
developing and offering more products to diversify investment opportunities
within the exchange, allowing investors to access new tools to expand their
portfolios.
The CEO of Maqassa said: “This new offering by Tadawul embodies a strong
addition for investment opportunities. We trust that single stock options
will aid in the continuation of the growth and progress of the Exchange.”