TRANSCENDING BOUNDARIES

Navigating challenges and seizing opportunities

The year under review was one where Tadawul recorded many extraordinary and multifaceted achievements. The Exchange dramatically elevated its standing in the global stock market landscape. This not only bolstered our brand image in the global investor community, but was also a great achievement for the Kingdom as a whole, and one which our citizens could take pride in. Major developments and innovations took place in market, products, technology, and organization. In tandem with these changes there was the supporting development in our people skills.

Looking back, we can discern a great enhancement in our value proposition over a five-year period. This is visible in the change of the composition of our investor profile; from being a largely Saudi retail-based one, it has evolved into one encompassing institutional investors and with a global composition. The results of our successes are not immediately visible in the financial results for the year. However, this is explainable by the fact that additional expenses incurred will bring results in subsequent years.

The exchange has been in a process of rapid development for several years. However, the great events of 2019 had their immediate precursors in the two years preceding which set the stage for the transformation during the year. Measures such as the formation of the subsidiary companies, launching of the parallel market, updating of the independent custody model, introduction of auction method for closing prices, and the announcement on the part of three global indices of intention to grant Tadawul emerging market status laid the foundation for the year’s achievements.

Triumphs of the market

While the year was a remarkable one on the whole, the watershed moment came as the year was coming to an end, the listing of Aramco. This was the culmination of about two years of arduous preparatory work, especially in markets and technology. The massive increase in volume created a need for a major revamping of infrastructure and systems. The listing turned out to be the largest IPO in history.

During the year, two global indices, MSCI and S&P completed the process of including Tadawul in their Emerging Market Indices. A third, FTSE, is expected to finalise the inclusion in H1 2020. This was instrumental in bringing about the massive influx of QFIs that occurred during the year, with the numbers almost quadrupling from 500 to 1800.

The MT30 joint Index with MSCI was also launched. This Index was designed to reflect the performance of the 30 largest and most liquid stocks in the market. It is based on free float market capitalisation subject to capping restrictions. The developments in the Nomu - Parallel Market, were another noteworthy achievement. A major step taken this year was to permit direct listings on Nomu without an IPO, making us pioneers among regional exchanges in this respect. The process of transitioning from Nomu to the Main Market was also eased. Nomu contributes to the goals of Vision 2030 by facilitating the growth of the SME sector. The parallel market also provides an exit route for investors and venture capitalists, who may be otherwise reluctant to invest in the SME sector.

We took steps to stimulate the debt market by revamping the fee structure for Sukuks and Bonds. The changes brought our fee structure in line with those of more advanced exchanges. They also bore fruit by way of a dramatic increase in the number of debt instruments and value traded. The profile of debt instruments also diversified with different yields and maturities.

Supporting the frontline

Besides the preparations for Aramco listing, a large number of initiatives were executed in IT and operations such as introduction of derivatives, systems to bring Muqassa on-stream, and development of market information. A large number of changes and enhancements had to be implemented concurrently without disruption to existing processes and within stringent time frames.

Our human resources development programmes continued for all levels of staff. Leadership-oriented programmes were executed for executive and managerial levels to equip them with the skills to drive the Organization towards its goals and execute its strategies. The Graduate Development Program (GDP) was revised to give more focused training for specific job roles, enabling the trainees to apply the academic knowledge they have gained, in practical work situations.

Looking at the highlights of our financial performance, the operating profit declined by 43.3% to SAR 42.1 Mn. This was the result of a decline in gross profit coupled with an increase in general and administrative expenses. The decline in gross profit was caused by decreases in trading commission and income from securities depository services. However, there was an offsetting increase in non-operating profit by 50.4% to SAR 111.2 Mn. Consequently, the net profit increased by 3.4% to SAR 153.3 Mn. The financial results have to be interpreted in the context of the heavy expenses incurred, both in technology and people, in preparation for and in connection with the Aramco listing, more of an “investment” for the future. The returns can be expected in subsequent years when the shares are actively traded.

Towards a better future

The developments in 2019 set the stage for further improvements. In 2020, we will see the clearing subsidiary, Muqassa, becoming fully operational. This will bring about greater security for investors, as Muqassa will act as an intermediary in the trading.

The introduction of derivatives will be another major step in the Stock Exchange’s journey to becoming on a par with developed exchanges. The MT30 Index Futures will be launched first, to be followed by stock futures and options. Commodities may follow at a later stage.

In conclusion, I wish to thank the Chairperson for her judicious and unstinting guidance and support. I also thank the Board of Directors for their oversight and guidance. Our achievements would also not have been possible without the dedication and commitment of our team.

It required the highest degree of professionalism to execute the extensive changes required within the time frames, while averting interruptions to operations.

Eng. Khalid Abdullah Al-Hussan

Chief Executive Officer