Learning from the Best

In 2015, the Tadawul opened its doors to Qualified Foreign Investors (QFI’s). How would you rate the success of this liberalization?

The Saudi Capital Market is already the largest and most liquid stock market in the Middle East and North Africa, and the 22nd largest stock market (by market capitalization) of the 66 members of the World Federation of Exchanges. We have great ambitions for our market in the future and will embody the best global practices and the highest level of professionalism in everything we do. The opening of the market to QFIs in 2015 is one of a series of actions we have undertaken to integrate the Saudi equity market with global markets. As a first step in June 2015, the QFI framework was made available to the largest international funds. Subsequently, in September 2016 we extended eligibility to a much larger number of international investors. At the same time, we have relentlessly continued to develop new services and introduced new products, such as the T+2 settlement cycle, DVP settlement, securities borrowing and lending, and short selling. These changes will lead to stronger interest in the Saudi market from a broader range of international investors, which will gain further momentum from the eventual inclusion of Saudi Arabia into emerging market indices.

Regulators and Tadawul officials have repeatedly stated their intention to join the MSCI Index of Emerging Markets. What systemic benefits would this bring?

We are undertaking changes to the equity market primarily as part of the transformation and diversification of the economy and to support the growth and development of the private sector. We expect these changes will also lead to the Kingdom’s inclusion in the MSCI Index of Emerging Markets, which would certainly bring many benefits, for example: global investable market indices will bring more exposure to the global investor community and coverage to the Saudi capital market; massive funds are benchmarked to tracking such indices, which will bring large capital inflow to the Saudi capital market; and interaction with global fund managers would reinforce the culture of adopting international best practices across the industry in Saudi Arabia. Higher disclosure requirements are in fact an advantage to both the market and overall economy. And these are determined by the Capital Market Authority (the CMA), not the index provider. We do not believe the potential MSCI EM Index inclusion would alienate family businesses from listing; in fact, it could be the exact opposite.

How does Tadawul plan to translate Vision 2030 in terms of capital market development?

Tadawul is dedicated to three key areas. The first is Financial Market Infrastructure (FMI) transformation. We have designed a new FMI in order to open the capital market to more products and participants to the benefit of all stakeholders. The infrastructure will facilitate a clearing and depository cycle that will drive QFIs to increase their investment in Saudi capital markets. The transformation will be completed by 2019. The second area is the inclusion in top international indices. These indices allow the development of index-based asset management products and further increase foreign investment in the Kingdom. The Saudi Capital Market will get the exposure it needs. The third is raising awareness. There is a need to mature the market by enhancing the knowledge of its investors. The majority of participants, around 68%, are retail investors who bring liquidity and volatility to the market. To reduce this and ensure the market moves in a more efficient way, awareness campaigns and programs are being conducted on different levels. These programs will shed light on regulations and serve as tools to help shape a more sophisticated retail base.