SIGNIFICANT MILESTONES

Saudi Arabia 2018-19 | FINANCE | INTERVIEW

Tadawul seeks to become an active player in global capital markets and build on its current role as the regional hub leading capital market development in the GCC and wider MENA region.

Khalid Abdullah Al Hussan
BIOGRAPHY
Khalid Abdullah Al Hussan carries a wealth of capital market knowledge that spans from business development and corporate planning to strategy and operations. Before his appointment as CEO in 2016, he held executive roles that covered markets, asset services, and depository, as well as strategy and market data. He has been with Tadawul since 2007. Prior to that, he worked in the insurance sector, managing areas of business and product development, marketing, PMO, and strategy. He is an engineer and holds an MBA from the University of Colorado. He is also a certified entrepreneur from the University of Colorado.

What is the significance of the decision by MSCI to add the Kingdom to the MSCI Emerging Market Index?

Inclusion in preeminent global benchmark indexes, such as MSCI, FTSE Russell, and S&P Dow Jones is a significant milestone for Tadawul and the Kingdom as a whole. This will result in significant foreign investment inflows, which will further support liquidity in the Saudi capital market and diversify opportunities for issuers and investors alike, contributing to greater market maturity and stability. The upgrades indicate a growing investor confidence in the Saudi market, reflecting the rapid and significant progress in the implementation of capital market reforms in line with Vision 2030, and further signifies the accessibility of Tadawul to international investors. It is an important step forward in achieving Tadawul's goals of becoming an active player in global capital markets and of building on its current role as the regional hub, leading capital market development in the GCC and the wider MENA region.

What impact have Tadawul's series of reforms and market enhancements had on the market and investors?

In 2017 and early 2018, Tadawul introduced an unprecedented array of enhancements and developments to improve market access and efficiency, enhance liquidity, bolster investor security, mitigate risk, reduce price volatility, and further align market practices with global practices. These key reforms and enhancements include the establishment of an independent clearing house to develop clearing services and guarantee all asset classes are traded on Tadawul, paving the way for the launch of a derivatives market in 2020, and the introduction of other new asset classes. Second, we are moving toward a closing price auction and enhancing the opening price auction in line with practices adopted by most other major markets. We are also updating the Independent Custody Model (ICM) to enhance qualified foreign investor access to the market by providing greater flexibility in trading limits while mitigating settlement risk. We have adopted a T+2 settlement cycle, a delivery versus payment (DVP) settlement system, and an independent custody model to bring market practices in line with international best practices and norms, while the Securities Depository Center (Edaa) has been spun out and is now a fully independent company. Furthermore, we are introducing securities lending and covered short selling, the first market in the region to do so. In terms of corporate governance, we are strengthening our rules to enhance both the rights of shareholders and boards, and improve transparency. Lastly, in January 2017, we adopted International Financial Reporting Standards (IFRS) and the Global Industry Classification Standard (GICS) for all entities listed on Tadawul to strengthen disclosure and comparability. The cumulative impact of these measures is a more efficient, liquid, and secure market for investors and intermediaries that is further aligned with global best practices. These measures also paved the way for fulfillment of MSCI, FTSE Russell, and S&P criteria for classification as an emerging market, which is expected to further boost liquidity and investor confidence in the Saudi market.

What is the significance of the Central Counterparty Company (CCP) and what role will it play in the future development of the Saudi capital market?

CCP will be responsible for developing future clearing services and guaranteeing all asset classes are traded on Tadawul in accordance with the best international risk management practices and standards. It is expected to be fully operational by 2H2019. The establishment of an independent clearinghouse is significant for the Saudi market. First, it will further strengthen the current market infrastructure, reduce systemic risk, and increase market efficiency by introducing mechanisms to ensure that the settlement is complete, and that all parties meet their obligations when settling trades in the market. By guaranteeing the settlement process, it will enable derivatives trading and the introduction of new asset classes, which will further diversify opportunities for both investors and issuers. Finally, it will further align the Saudi market with international norms and best practices, enhancing the attractiveness of the market to all investors.