SSOs effective for hedging; more companies to be added: Tadawul official

Nayef Alathel Acting Chief of Derivatives at Tadawul

Single stock options (SSOs) are deemed an effective tool for investors seeking to hedge and risk manage their investment portfolios more efficiently, Acting Chief of Derivatives at the Saudi Exchange (Tadawul) Nayef Alathel said.

In an interview with Argaam, Alathel explained that SSOs are the third derivatives product introduced on Tadawul, reflecting the Saudi exchange commitment to enable investor access to new and diverse investment opportunities. 

This financial instrument, according to the Alathel, gives the holder the right to sell/buy an underlying asset at a specific price and date. The underlying asset of these contracts is single stocks, the value of which is derived from the value of the underlying stocks. 

He pointed out that SSOs contracts allow for tracking the price movement of the underlying stock (instead of following the price movement of a basket of shares as in index futures contracts). Unlike stock trading, these contracts permit holders to benefit from the leverage feature to enhance profitability and market penetration with less capital, with the possibility of short selling without owning the underlying shares. 

On starting with just four companies, Alathel said the four core assets represent the stocks of the largest and most liquid Tadawul-listed companies, including Saudi Aramco, Al Rajhi Bank, stc and Saudi Basic Industries Corp. (SABIC). 

He explained that Tadawul intends to expand the portfolio of SSOs contracts to include other companies in the future, noting that it is currently working with a number of listed companies on the launch of SSOs contracts, with more details to be revealed soon. 

Tadawul has already launched several derivatives products, namely MT30 index futures, which are settlement cash futures contracts, as well as single stock futures (SSFs) contracts, and recently introduced several new futures indices aimed at enhancing the opportunities available to investors. This includes three corporate size indices — Tadawul Large Cap Index, Tadawul Medium Cap Index, Tadawul Small Cap Index, coupled with the Tadawul IPO Index. 

Alathel also underlined that the launch of SSOs marks a crucial step for Tadawul as they contribute to boosting liquidity levels and enhance the efficiency and progress of the Saudi capital market in line with the most prominent international standards. 

According to Argaam data, Tadawul plans to introduce SSOs contracts on Nov. 27, to be cleared with the Securities Clearing Center Co. (Muqassa).