Year in review: Tadawul’s key reforms in 2017

Saudi Arabia has seen the introduction of many important economic and social reforms following the launch of Vision 2030 last year, aimed at diversifying the country’s oil rich economy and attracting foreign investment.

The Saudi Stock Exchange (Tadawul) and the Capital Market Authority (CMA) have unveiled many changes in 2017, aiming to boost inflows of foreign investment and align the market with global standards and best practices.

Argaam takes a look at eight key reforms introduced this year.

1) Reclassification of sectors

Tadawul in January reclassified its equity market sectors according to the Global Industry Classification Standard (GICS). The step was aimed at enhancing transparency and providing more reliable information on sector performance.

2) Launch of Nomu Parallel Market

In February, the Saudi exchange launched the Nomu Parallel Market, with seven new companies listed. The market was launched for small and medium-sized enterprises, with fewer listing requirements compared to Tadawul.

3) T+2 settlement cycle

Tadawul in April adopted a T+2 settlement cycle for listed securities, allowing a two-day settlement period for transactions. The transition increases the level of asset safety for investors by providing more time to verify trades. It also unifies the settlement duration for all types of listed securities across most international markets.

In conjunction with the launch of T+2 settlement, Tadawul introduced securities borrowing and lending and covered short selling.  

4) Amending securities tick sizes

In May, Tadawul approved amending the securities tick sizes (price change units) effective June 4. The change applies to all securities listed on Tadawul and Nomu, as well as Real Estate Investment Traded Funds (REITs) and tradable rights. Under the amendments, values of tick sizes were be reduced and more price bands were added.

5) Plan to allow foreign investment in listed firms

In October, the CMA signed a memorandum of cooperation with the Saudi Arabian General Investment Authority (SAGIA) to set up a framework to allow non-resident foreign investors to own direct stakes in listed companies. Under the deal, “non-resident strategic foreign ownership means owning 10 percent or more of a company’s share capital that has voting rights attached to it” except in those sectors that prohibit foreign investment.

6) Allowing foreign investment in Nomu

During the same month, the regulator approved allowing direct investment of non-resident foreigners in the Nomu Parallel Market, effective from Jan. 1, 2018. Under the new regulations, non-resident foreign investors are not allowed to own 10 percent or more of an issuer’s listed shares or convertible debt instruments. Resident and non-resident foreign investors will own a maximum of 49 percent of a listed stock or convertible debt instruments.

7) New rules for mergers and acquisitions

The CMA approved updated regulations for mergers and acquisitions (M&A) among Saudi-listed companies, effective upon publication. The move came after reports Saudi Arabia was planning to ease M&A rules in order to encourage mergers and acquisitions among Tadawul-listed companies.

8) Loosening rules for asset management firms

The regulator in October also loosened rules for licensing asset management and other investment firms, reducing requirements to obtain a “management activity” license. The move was aimed at boosting the number of asset managers in the Kingdom and increasing private equity and venture capital investments, the CMA said.

Under the new rules, the minimum net assets required for an investment firm were reduced to SAR 10 million from SAR 50 million. The minimum paid-in capital required for management activities was also cut to SAR 20 million from SAR 50 million.

Write to Jerusha Sequeira at jerusha.s@argaamnews.com