POWERING THROUGH

In addition to a large number of other achievements, in the year 2019 Tadawul recorded a remarkable growth in its market. This was especially reflected in the increase of the market capitalization, which was largely driven by the Aramco listing. Tadawul leapt in its ranking among global stock exchanges from the 24th to the 10th position while it continues to be the largest stock exchange in the MENA region. This milestone not only instilled a sense of pride among Saudi citizens but also bolstered Tadawul’s brand image among the global investor community. The achievements of 2019 were built on those of the previous two years which were also very eventful. For further details refer: Shaping the Contours of a New Era, Where We Stand, and Era Defining Moments.

As at 31 December 2019, compared with 31 December 2018, the market capitalization grew by 385.51% from USD 495 Bn to USD 2,406 Bn; the Tadawul All Share Index (TASI) recorded a growth of 7.19% from 7,826 to 8,389; the value traded increased by 1.06% to reach USD 234.70 Bn.

 

 

Looking back over a period of five years, we can see a great change in the value proposition of Tadawul. Back then we largely had Saudi retail investors. Today we have a much broader investor profile with more institutional investors, investors from the GCC, and the rest of the world.

Recognition by global indices and increasing Qualified Foreign Investors (QFIs)

The inclusion of Tadawul into the Emerging Market Indices of MSCI and S&P, which was announced the previous year, was completed in 2019. Inclusion into the FTSE Russell Emerging Index was also largely completed, with the last out of five tranches being due in March 2020. It is very commendable that Tadawul achieved these inclusions after being on watch lists only for one year, which is an unprecedented achievement. The inclusion in these indices resulted in an enhancement in the visibility and image of the Exchange and greater confidence on the part of foreign investors. The latter is reflected in the dramatic increase in QFIs from 500 to over 1,800 in the course of a year. Increase in QFIs has also resulted in an increase in velocity and foreign investor share in the value traded. The launching of the Tadawul MSCI Tadawul MT30 Index provided market participants with an index based on the largest and most liquid securities listed on the Tadawul Main Market.

Inclusion in Emerging Market Indices resulted in:

During inclusion in Emerging Market Indices, Tadawul and Edaa introduced a number of changes to the Exchange’s procedures based on feedback received from market participants. These included extension of the closing auction and trade at last sessions. Both were extended to 20 minutes from the previous 10 minutes. There was also an extension of the trade rejection window.

*Substantial increase in market capitalisation due to Aramco listing

 

Ownership value

Inclusion in the Emerging Market Indices has had a marked impact on foreign investor participation in 2019.

A major step which is in progress is the introduction of market makers, which will enhance liquidity in the market.

Citigroup Saudi Arabia became a member of Tadawul, with the right to deal as a principal and an agent in addition to performing brokerage services.

The Nomu – Parallel Market has much lighter listing requirements than the Main Market. The differences are:

• Lower minimum market capitalization
• Lower minimum percentage of shares to be offered to the market
• Lower minimum number of public shareholders
• Less stringent disclosure requirements

A major revamping was carried out of the Nomu – Parallel Market, to facilitate SMEs entering the capital market.

• Among the steps taken were permitting companies to directly list in Nomu without an IPO, with Nomu being the first Exchange in the GCC region to do so. This measure will enable SMEs which do not require additional funds to create a liquid market for their shares.
• The percentage of the total share capital that needs to be listed has also been reduced.
• The process of transitioning from Nomu to the Main Market has been eased and five companies have already taken advantage of this with more anticipated in 2020.
• The reporting frequency has also been reduced from quarterly to semi-annually to reduce the regulatory burden.
• The Nomu Capped Index was also introduced to limit the weight of a single security. These changes have also brought about an increase in market liquidity.

The development of Nomu, by providing easy access of funds to SMEs, further affirms our commitment to the goals of Vision 2030. Apart from funding, the listing will also provide facilitation to the SMEs for branding and promoting their business. For the key statistics of the Nomu – Parallel Market 2017-2019 refer Era Defining Moments.

Major steps were also taken to develop the debt market. Changes have been made to the fees and bonds structure in coordination with the Capital Market Authority (CMA) and the National Debt Management Center. Edaa’s fees for IPO upload and annual registry of Sukuks and Bonds were reduced which will benefit issuers. Tadawul has also reduced its minimum annual listing fees and introduced caps on same. Trading commissions have also been reduced. These changes have brought our fee structure in line with those of advanced exchanges.

The par value was reduced to SAR 1,000 for Government Sukuks. Yield calculation was activated on fixed coupon Sukuks and Bonds giving investors a real-time view of return based on current market prices. The Sukuk and Bond trading hours were aligned with the rest of the market. Suspension of trading of Corporate Sukuks prior to coupon payment was removed. The information available on the Tadawul website on Sukuks and Bonds was enhanced.

An agreement was signed with IHS Markit, a leading global provider of fixed income indices. Under the agreement fixed income securities traded on Tadawul will be included in IHS Markit’s iBoxx Bond Index. MOUs were signed with two of the largest international clearing houses, Euroclear and Clearstream, to give international investors access to the Saudi debt market.

This has resulted in a diversity of products with different yields and maturities, giving investors a wider range of options and corporates more diverse alternatives to raise funds. The trading engine has been designed to execute multiple types of orders which will serve investors’ needs. A pioneering step that has been taken is the entry of ETFs into the Debt market after approval for this was obtained. For more statistics on debt securities refer Era Defining Moments.

Another significant development was the inclusion of Saudi REITs in FTSE EPRA/Nareit Emerging Index, an index specializing in real estate.

Inclusion in the global indices brought about greater interest in investing on the part of portfolio managers. This in turn has created a need for derivatives to enable portfolio managers to hedge their positions. It is planned to start a cash-settled index futures contract, SF30, with MT30 as the underlying index in Q1 of 2020. Subsequent to this, Tadawul plans to launch single stock futures. These measures will promote further foreign investment.

Capital market offering

Extensive preparatory work was done for the launching of derivatives. A complete new infrastructure, including a new trading engine and a new clearing system has been set up. Muqassa has been enabled to clear and settle derivative contracts. Tests have been successfully and proactively conducted on all new systems to ensure they are functioning according to requirements. Members and banks have been familiarised with the new systems and procedures through workshops and training programmes.

Closed Ended Funds (CEFs) is another new product that is due to be introduced. These are instruments which will be traded on the Exchange similar to equities. They will give an added investment opportunity, increase diversification and reduce risk.

Achievements of the Market Information Division

Major improvements were also made in market information and indices during the year. Enhancements were made to the e-reference Data Portal making a wide range of data sets and reports available to its subscribers. Index rules and methodology were also updated after sharing with all market participants and the public. Market Information Division conducts continuous dialogues with portfolio managers, data vendors, and index providers to obtain their feedback on existing products and services and potential for new innovations and enhancements. New equity and fixed income indices are anticipated to be introduced in 2020 including Sharia Index, Corporate Governance Index, and Environmental, Social and Governance Index.

Achievement of the Listing Department

Reaching out to the market

As part of the Division’s efforts to promote the importance of a good investor relations (IR) function in an organization, it has been carrying out a campaign to raise awareness on the subject amongst organizations in the Kingdom. The campaign which has been running for three years now, had the following achievements during the year under review.

• 6 IR workshops conducted for the market, one of which was in partnership with the Middle East Investor Relations Association (MEIRA). The 30 largest companies were invited for this workshop, with a >50% attendance rate.
• Began collaborations with universities on IR lectures for students.
• 5 university visits receiving a 100% positive feedback on programmes conducted.
• 2 IR post listing support presentations.
• Began CIRO Exam preparation to be provided in the KSA. Further discussion is in progress with the CMA to assist fund the exam’s costs.
• Increased IR awareness by making multiple media posts regarding the value of the IR function.

Another focus area was making listed companies more conscious of the importance of investor relations. Our efforts in this direction have included launching of the Investor Relations toolkit, workshops and training sessions. The fact that our endeavours have been fruitful is shown by the fact that a Saudi company won the Grand Prix Award for 2019 of the Middle East Investor Relations Association (MEIRA).

In pursuance of the initiative “Incentivize and encourage private companies to offer and list their shares on the stock market” of the FSDP, a number of incentives have been provided to encourage private companies to offer and list their shares. These incentives, numbering 10 in all, have been initiated by the Capital Market Authority in partnership with the relevant Government entities. Some of the incentives are financial such as increasing the loan limits granted by the Saudi Industrial Development Fund (SIDF) to listed companies. Others are non-financial like providing a dedicated relationship manager to handle all transactions with a listed company and providing a fast track service to handle requests and surmount difficulties.

Incentives for listing on the Saudi Stock Exchange (Tadawul)

Achievements of marketing and communications

The following marketing and communication activities were conducted during the year which significantly contributed to building awareness of Tadawul’s operations and development not only locally, but regionally and globally as well.

• Conducted 16 events including listing events
• Implemented 92 communication activities:
  30 press releases;
  42 media interviews;
  20 announcements
• Produced over 1,800 pages of marketing materials (30% growth over 2018)
• Over 2,800 social media posts were made (30% growth over 2018)
• Reached 338,000 followers (35% growth over 2018)

The Exchange is constantly seeking to enhance its customer experience through its website, mobile, contact centre, and surveys. An enhanced Search Engine Optimization (SEO) process was implemented for the website. The Contact Centre handles enquiries from Tadawul and its subsidiaries through e-mail, chat, calls, and social media.

The following are some highlights of the customer experience:

• 39,437 customer engagements (22.35% higher than 2018) – a focus on enhanced customer experience
• 98% customer satisfaction rate across all channels in terms of Service Level Agreements (SLAs)
• 1 hour 18 minutes turnaround time achieved by the Contact Centre, out of a target of 2 hours for social media inquiries, in line with international standards and best practices
• One of only two exchanges included in MSCI EM Index that have Contact Centre live chat and social media
• Over 40 surveys conducted with feedback collected from 11,000+ individuals
• Customer Relationship Management System:

  - Has 40 trained users

  - Covers 14 sales processes

  - Recorded 400 new leads

  - Achieved 3,000 new contacts

  - 10,000 new Contact Centre cases