Saudi Exchange (Tadawul)

The Saudi Exchange originated informally in the 1950s and continued to operate in this manner until the 1980s, when the government introduced fundamental regulations. With the issuance of the 'Capital Market Law' under Royal Decree No. (M/30) on July 31, 2003, the Capital Market Authority (CMA) was established. It is a governmental authority with financial and administrative independence, directly reporting to the Prime Minister.

The Capital Market Law stipulates the establishment of the Saudi Exchange as a joint-stock company, making it the only entity authorized to practice securities trading in the Kingdom of Saudi Arabia. The Saudi Exchange Company (Tadawul) was established on March 19, 2007, as a joint-stock company in accordance with Article Twenty of the Capital Market Law.

The Saudi Exchange Company (Tadawul) was transformed into a holding company (Saudi Tadawul Group) on May 20, 2021. The Saudi Tadawul Group is the parent company of four companies: Saudi Exchange (Tadawul); the Securities Clearing Center Company (Muqassa); the Securities Depository Center Company (Edaa); and Wamid Company, which specializes in providing technological solutions based on innovation. The integration of the services of the four companies affiliated with the group contributes to enhancing the attractiveness of the Saudi capital market.

The Saudi Exchange, or "Saudi Tadawul," is responsible for listing and trading securities for local and international investors. It is the stock market concerned with trading activities and the official source for all information related to the market in the Kingdom. It plays a pivotal role in achieving the strategic growth plans of the Saudi Tadawul Group and provides market participants with attractive and diverse investment opportunities.

Saudi Tadawul is one of the eleven large markets among the sixty-seven financial markets that are members of the World Federation of Exchanges. It is classified as a large capital market compared to its counterparts in the Gulf Cooperation Council countries and the Middle East region. Additionally, it is the third-largest financial market among its counterparts in emerging markets. It is an affiliated member of the International Organization of Securities Commissions, the World Federation of Exchanges, and the Arab Federation of Stock Exchanges.

On March 11, 1926, King Abdulaziz Bin Abdulrahman Al Saud, in his capacity as King of Hejaz and Sultan of Najd and its Dependencies, granted a concession to the Saudi National Motor Vehicle Joint Stock Company. This concession allowed the company to establish founding a vehicle company in the Hejaz lands for twenty years from the ratification date. This event marked a significant early development in the stock market history after the establishment of the Kingdom of Hejaz and Najd and its Dependencies, and gave rise to the idea of shareholding. The royal approval of the concession set the company’s capital at GBP30,000, divided into six thousand shares valued at GBP5 each. It also stipulated that the company's shares be equally split between the concessionaires and the public, with half offered for citizen subscription. The concession text incorporated contemporary concepts and practices at the time, including disclosure, public announcements, invitations for public subscription, and the formation of an elected board of directors.

As economic performance and the financial sector developed, markets expanded, and foreign investment through banks began, corporate market activities emerged. In response, the Capital Market Authority (CMA) was established in 2003. This government authority oversees and regulates the capital market in the Kingdom, ensuring the protection of investors and securities dealers from unfair and unsound practices.

In line with its role in financing development and enhancing the role of the private sector by attracting local and foreign capital, the CMA continued to advance during the Eighth Development Plan by preparing the implementing regulations to regulate, grow, and develop the market. In 2006, it introduced several regulations to govern the market, including the Real Estate Investment Funds Regulations, the Corporate Governance Regulations, and the Investment Funds Regulations. Additionally, in 2007, the CMA issued the Mergers and Acquisitions Regulations.

Saudi Tadawul Group Holding Company was established as a Saudi closed joint stock company registered in the Kingdom under Commercial Registration number 1010241733 dated December 12, 2007. The company was established by the Royal Decree No. M/15 dated March 20, 2007, and the Minister of Commerce Resolution no. 320/k dated December 11, 2007. Since its incorporation, the authorized, issued, and fully paid-up share capital of the company is SAR1.2 billion divided into 120 million ordinary shares of SAR10 each . The company was fully owned by the Public Investment Fund (PIF). The company was converted into a holding company on May 20, 2021, pursuant to the resolution of the Extraordinary General Assembly of the company in its meeting dated April 6, 2021. The PIF has sold 30 percent of its shares in the company through the initial public offering on the Saudi Exchange.

The Saudi Tadawul Group Holding Company was listed in the “Saudi Tadawul” on December 8, 2021. Its shares are traded on the main market within the financial services sector, under the name (Tadawul Group), and with the symbol (1111) and ISIN (SA15DHKGHBH4). The Saudi Tadawul operates its business from its headquarters in the capital, Riyadh. The Capital Market Law, issued in 2003, outlines the legal framework, goals, and responsibilities of the capital market, designating it as the official source for all market-related information.

Saudi Tadawul serves as a platform for buyers and sellers to trade shares of publicly traded companies. It also facilitates the listing and trading of bonds, sukuk, real estate investment trusts (REITs), and exchange-traded funds (ETFs).

In the first quarter of 2023, the Saudi capital market experienced growth in subscriptions and listed companies, with a total of approximately 278 companies on both the main and parallel (Nomu) stock markets. This includes 224 companies on the main market and fifty-four on the Nomu market. Additionally, the number of investment funds reached around 1,076, comprising 260 public funds and 816 private funds. By the end of the first quarter of 2023, the total number of subscribers in both public and private investment funds had increased to 792,824.

In the Saudi Exchange, prices are set through an auction mechanism. The opening auction occurs from 9:30 AM to 10:00 AM, right before the market officially opens at a variable time within thirty seconds after exactly 10:00 AM. The closing auction takes place after continuous trading, from 3:00 PM to 3:10 PM (UTC 3). The execution price from the closing auction serves as the closing price and the reference price for the following day.

The Saudi Exchange has around 252 trading days annually on average. It closes on official and religious holidays (Eid al-Fitr, Eid al-Adha), as well as National Day and Founding Day.

Companies listed on Tadawul are categorized into twenty key economic sectors. These sectors include energy, basic materials, capital goods, commercial and professional services, transportation, consumer durables, consumer services, media, consumer discretionary retail, consumer staples retail, food production, healthcare, pharmaceuticals, banks, investment, finance, insurance, communications, public utilities, real estate investment funds, and real estate management and development.

The Saudi Exchange is a fully owned subsidiary of Saudi Tadawul Group and was established in March 2021 following the transformation of the Saudi Stock Exchange (Tadawul) into a holding company, Saudi Tadawul Group.

As the largest stock exchange in the Middle East, the Saudi Exchange is among the ten largest stock markets among the sixty-seven members of the World Federation of Exchanges. It is the official source of all market information, responsible for the listing and trading in securities within the Saudi market of local and foreign investors.

The Securities Depository Center Company ‘Edaa’ was established in 2016 and is fully owned by the Saudi Tadawul Group. Edaa works to develop infrastructures and procedures to execute transactions in alignment with the best international standards. It also aims to enhance the efficiency of securities deposit and registration services in alignment with Saudi Vision 2030 by developing a more resourceful environment that fosters excellence within different capital market sectors.

It is a closed joint-stock company fully owned by Saudi Tadawul Group. The Securities Clearing Center Company ‘Muqassa’ was established in 2018 to contribute to developing market infrastructure, enhancing market efficiency, and supporting and enabling Saudi market expansion into new products and services.

Muqassa reduces post-trade risk, provides a centralized counterparty risk management service, and develops clearing services in accordance with international practices. The Clearing Center can guarantee any asset class, both traded in the exchange and over-the-counter (OTC). Muqassa also nets transactions between its members on a multilateral basis, decreasing the number and value of securities settlement transactions and cash payments.

Established in 2021, Wamid contributes to the development of the infrastructure of the Saudi Exchange and adds depth and diversity to the services offered by the Saudi Tadawul Group and its subsidiaries. As the innovation arm of the Saudi Tadawul Group, the company helps market participants address real-world challenges by harnessing the power of technology and data to unlock limitless potential within the Saudi capital market. It contributes to advancing the Saudi Exchange, diversifying business sectors, supporting a new generation of innovative technological solutions, and contributing to the realization of Saudi Vision 2030 to drive economic growth in the Kingdom.

The Saudi Stock Exchange (Saudi Tadawul), in collaboration with the Capital Market Authority, has contributed to the advancement of Saudi Vision 2030 and its economic goals and facilitated easier access, improved efficiency, and heightened levels of governance and transparency, reinforcing “Saudi Tadawul” as a leading market in the region due to its size, liquidity, and appeal. The company is affiliated with several global federations, organizations, and indices, including: the World Federation of Exchanges (WFE), which it joined in 2009; the International Organization of Securities Commissions (IOSCO) as an associate member since 2010; and the MSCI, FTSE Russell, and S&P Dow Jones Global Emerging Markets Indices, which it became part of in 2018.

In 2015, the Saudi Stock Exchange adopted a new automated trading system called 'NASDAQ X-Stream INET,' one of the leading global trading platforms. This system allows the trading of securities by linking buy and sell orders based on price priority and the chronological order of orders. Transactions are conducted between brokers, either for their own benefit or for their clients. Both trading and systematic clearing are simultaneously recorded on the trading, deposit, and settlement systems.

The Kingdom announced the opening of its stock market to qualified foreign investors starting June 15, 2015. This move positively impacted the market's value and led to increased gains.

The objectives of opening the Saudi stock market to investment by qualified foreign financial institutions are multifaceted, aimed at achieving long-term added value. These goals include enhancing institutional investment in the Saudi Exchange, which will support market stability and reduce volatility, as well as transferring knowledge and expertise to local financial institutions and investors. This will elevate the professionalism of Saudi capital market participants, improve the performance of listed companies - particularly in financial disclosures - boost the efficiency of specialized investment firms, and strengthen the Saudi capital market's position as a leading market. Additionally, it aims to increase the likelihood of upgrading its global classification to an emerging market, according to the classification of relevant global indices, and enhance the level of research, studies, and evaluations of the market in general and its listed companies in particular.

In 2017, Saudi Tadawul adopted the Corporate Governance Regulations, approved by the Capital Market Authority. These regulations form a set of effective arrangements for governing joint-stock companies listed on the market, aiming to protect shareholders' rights and clarify the relationships between shareholders and the board of directors, and between the board of directors and the executive management team. The regulations focus on safeguarding shareholders' rights by ensuring fair treatment and transparent access to information, thus allowing them to exercise their statutory rights fully. Additionally, the regulations provide detailed measures on forming boards of directors and their committees, specifying their powers, responsibilities, and the rights and duties of their members. This framework is designed to enhance effective participation in decision-making within the boards of directors.

Detailed provisions related to auditors and internal control procedures are also included in the regulations. Boards of directors are required to disclose all pertinent information to shareholders and stakeholders, facilitating informed investment strategies and interactions with the company in a fair and systematic manner.

Saudi Tadawul has updated the settlement period for securities transactions to two business days after the trade date (T 2). This change aims to enhance investor asset protection by allowing time to verify transaction validity and address errors. It also helps align international standards for settlement procedures applied in global capital markets, promotes the capital market's openness to global markets, and enhances the investment environment to encourage institutional investment, all while adapting to future changes.

It is a service provided by the Securities Depository Center (Edaa), a subsidiary of Saudi Tadawul Group. Edaa empowers market participants to manage potential insolvency in settlements by allowing them to transfer funds from their account, make purchases in the market, or borrow through securities lending agreements or optional purchase deals.

In 2017, the Saudi Exchange and Nasdaq signed an agreement to advance settlement and clearing systems, improve Tadawul's technological infrastructure, introduce new categories of securities to the Saudi market, and offer additional services to investors.

Tadawul has established the Investor Relations Team as a key communication channel between listed companies, market participants, regulatory and supervisory authorities, and analysts in the Kingdom. This initiative aims to enhance transparency and disclosure among listed companies and implement best international practices in investor relations.

Recent developments by the Saudi Exchange include launching real estate investment traded funds to diversify and expand investment opportunities, activating the delivery-for-payment system, enabling the lending and borrowing of securities and covered short selling, eliminating advance cash disbursement requirements for certain investors, and listing and trading government debt instruments for all investor categories, among other advancements.

The PIF concentrates on investing in local companies, with its portfolio encompassing both listed and unlisted companies on the stock market across diverse sectors. Through its portfolio, the fund aims to enhance the market value of its investments in Saudi companies while improving governance standards, capital management, and dividend distribution policies.

The fund owns several local companies, including some listed on the Saudi Exchange (Tadawul). Among these is Elm Company, founded in 1988, which offers integrated business solutions and innovative digital and consulting services aligned with top international technology standards. Elm serves a range of vital sectors in the Kingdom, including industry, health, transportation, interior, Hajj and Umrah, labor, finance, emerging businesses, and more.

Additionally, the fund is a key shareholder in the Saudi Arabian Oil Company (Aramco) and the Saudi Basic Industries Corporation (SABIC). It also invests in the Saudi Telecommunication Company (stc), established in 1998. The company delivers a variety of digital services and solutions, encompassing communications, information technology, digital media, digital payments, and cybersecurity.

The PIF invests in several Saudi companies listed on the market, including Qassim Cement Company. Established in 1976, Qassim Cement primarily focuses on manufacturing, producing, and trading cement and its derivatives, as well as related accessories. It also engages in associated activities both directly and indirectly.

In 2019, Saudi Aramco made a portion of its shares available for public subscription, receiving a total of SAR446 billion in subscription applications from individuals and institutions, which is equivalent to USD119 billion. The IPO drew approximately 5.06 million subscribers and became the largest IPO in the world.

This IPO was a key component in achieving the goals of Saudi Vision 2030, aiming to diversify the economy and create new income sources, while also strengthening the Saudi capital market's standing on the global stage.

Fiscal policy is a crucial instrument for managing and fostering economic activity. It addresses market failures and aims to achieve economic balance by meeting targeted levels of income and employment. This policy encompasses a range of plans and tools organized within a systematic framework to balance revenues and expenditures. It is a macroeconomy policy aiming to promote economic growth.

The Ministry of Finance sets the fiscal policy to balance the objectives of maintaining financial stability, encouraging sustainable economic growth, and supporting the Kingdom’s economic and social transformation in line with Saudi Vision 2030.

Setting fiscal policies helps sustain economic strength during fluctuations, as seen during the global financial crisis (2007-2008). The Ninth Development Plan adopted an expansionary fiscal policy, which involved increasing public spending over the plan's duration. Public spending constitutes a key tool for stimulating economic activity, aligning budget programs and appropriations with the plan's goals and priorities.

The expansionary fiscal policy of the Ninth Plan contributed to supporting specialized lending institutions amid the financial crisis. It involved raising the capital of these institutions, including: the Saudi Industrial Development Fund by SAR13 billion, the Real Estate Development Fund by SAR43 billion, the PIF by SAR20 billion, and the Saudi Credit and Savings Bank by SAR5 billion.

One of the key objectives of fiscal policy is to strengthen the macroeconomy and monitor its performance, promoting growth and development. This role is particularly significant in resource-rich economies and often involves coordination with other policies. In the Kingdom, fiscal policy is the primary tool for reallocating revenues from the oil sector to the non-oil sector.

As per the requirements of Saudi Vision 2030, the fiscal policy focuses on improving revenue and expenditure structures and gradually increasing the proportion of non-oil revenues in the medium term. This approach supports spending on vision realization programs (VRPs), megaprojects, and private sector development, as well as mitigating the impact of structural and economic reforms through targeted social support programs.