DUBAI: Nasdaq Dubai, the UAE’s international stock exchange, is to launch futures trading in Saudi Arabian quoted companies before the end of this year, Arab News can reveal.

The move will allow global investors to trade shares in Saudi Arabian listed companies via contracts to buy or sell shares at a set price in the future, and is expected to add to the attraction of the Kingdom’s financial markets among international investors.

It will be the first time Saudi stocks can be traded in derivative form.

Hamed Ali, chief executive of the Dubai-based exchange, said: “We are delighted to provide investors with an exciting new route to gain exposure to the Kingdom’s dynamic and rapidly expanding equity markets. What we’ve seen happen in Saudi Arabia is impressive reform, progression and change, and there is a lot of regional and international interest in the stock markets there.

This is good news for our two markets, and a good step in building a stronger bridge between them,” he added.

Ali has been involved in talks about the initiative for some time with relevant market players in the Kingdom.

The framework we have built for trading and clearing Saudi futures is based on intensive consultations with regional and international market participants, including brokers and potential

investors.  Our futures will provide further

impetus to invest in Saudi Arabian capital markets and help develop new links with market participants,” he added.

The Kingdom’s stock exchange, the Tadawul, has announced its intention to enable futures and other derivatives trading, but its plans are still thought to be some way from implementation. Earlier this month it announced the setting up of an independent clearing house, essential to pave the way for derivatives trades.

The launch of futures by Nasdaq Dubai comes at a busy time for markets in the Kingdom. The Tadawul’s headline TASI index is among the best performing in the world, having risen 11 percent so far this year.

Index provider MSCI is widely expected to include KSA stocks in its widely tracked emerging markets index from next year, opening the bourse up to significant inflows from foreign investors.

Such investors are also eagerly waiting for a raft of domestic privatizations that could further boost the markets later this year and beyond.

The most eagerly anticipated is the initial public offering (IPO) of a minority stake in oil major Saudi Aramco, which could be the biggest IPO in history. Asked about the listing, Ali said: “We would definitely offer single stock futures in it.”

Nasdaq’s Saudi futures market will commence in the third quarter of the current year, offering contracts on some of the Kingdom’s biggest stocks by market capitalization and liquidity, including some of the Middle East’s largest businesses active in sectors such as petrochemicals, real estate, banking and transport.

The futures contracts will give investors new hedging tools to take long and short positions on the companies, at a time when international investor interest in the Kingdom’s stock market is increasing rapidly, Nasdaq believes.

The Nasdaq futures market currently operates with leading Gulf brokerages as members, and two active market makers on the UAE contracts.

Decoder

Futures Contracts

Futures contracts allow investors to buy shares (or other assets) at an agreed price for delivery (and payment) at a later date. They are a common tool used to hedge risk, by limiting exposure to price fluctuations.

More market participants are preparing to join as Nasdaq Dubai adds the KSA single stock futures and expands its

derivatives platform in phases, to include futures based on stocks and indices of various exchanges in the Middle East and North Africa, as well as options, Nasdaq said. More brokers are expected to join the Nasdaq platform as the trade in Saudi futures takes off, including some from Saudi Arabia.

Nasdaq Dubai launched UAE futures trading in 2016 with single stock futures on seven UAE-listed companies. That number has since increased to 17 and last February the exchange added futures on Dubai Financial Market’s DFMGI share index, as well as the ADSMI index of Abu Dhabi Securities Exchange. Futures on MSCI’s UAE index will be added soon under a license agreement signed with MSCI.

We are really pleased with the futures market performance. Volumes have been steady, but, of course, they just reflect the underlying performance of the market,” Ali said.

Futures and other derivative products are common instruments in Western and other financial markets, and are regarded as key mechanisms to enhance market

liquidity, but have been slower to gain

acceptance in the Middle East. 

The futures move by Nasdaq Dubai is a sign of increasing co-operation between the UAE and Saudi stock exchanges, as well as others in the Gulf Co-operation Council region.

Sarah Al-Suhaimi, chairperson of the Tadawul, said recently that she wanted to make the Tadawul the “dominant” exchange in the region, and that discussions had taken place between exchange policymakers and regulators with a view to enabling common listing rules and dual listings of regional companies.

Can there be other things we can do

together with Riyadh? Yes, of course, there are lots of things, but we need to agree a framework,” Ali said.

“We will be looking at more products in the future. This is just a starting point,” he added.