Saudi Tadawul to launch single stock future contracts on July 4

In order to give further fillip to its market liquidity, Saudi Arabia Stock Exchange Tadawul on Sunday announced its plans to launch single stock futures contracts, the second in a series of derivatives products, from July 4.

The new contracts will enable local and international investors to hedge and manage portfolio risks more effectively, while the bourse diversifies products available for trading in the market, the Saudi bourse said in a statement.

The bourse, which launched the derivatives market in 2020, said 10 underlying stocks were selected for single stock future contracts. Tadawul is also seeking to offer other financial derivative products, including options contracts for single shares.

Selection Criteria

These 10 stocks were selected based on a list of criteria aimed at ensuring the availability of liquidity to meet market requirements, maintaining market integrity, enabling effective portfolio management and hedging risks.

These 10 stocks are; Al Rajhi Bank, Saudi Aramco, Saudi National Bank, Alinma Bank, Sabic, STC, Saudi Kayan, Saudi Electricity, Almarai and Maaden.

“The underlying stocks have been selected from the largest and most liquid companies listed on the Saudi Exchange,” the statement noted.

The single stock future contracts will be cleared and settled by Securities Clearing Centre Company Muqassa in line with international best practices.

The Saudi Government has introduced several measures to attract international investors and issuers as part of efforts to draw foreign investment, diversify the economy and reduce its reliance on oil.

Tadawul, which is among the top 10 global stock markets, became the third publicly traded regional stock exchange after the Dubai Financial Market and Boursa Kuwait when it listed on 8 December 2021.

Confirms Tadawul’s Commitment

Mohammed Al-Rumaih, CEO of Tadawul, said: “We are pleased to launch the second derivatives product in Saudi Arabia. This is another step that confirms our commitment to providing advanced and innovative products and services to local and international investors. The launch of single stock futures contracts also supports the prosperity of the Saudi capital market by diversifying the available products and enhancing them with effective hedging tools to manage risks and limit losses in any adverse economic conditions.”

These contracts are standard futures contracts with an individual stock as its underlying asset and are traded on the stock exchange, similar to other cash market products.

They represent an agreement made between a buyer and a seller who are obliged to complete a transaction at a date in the future. Its value is derived from the value of a stock.

These stocks can be traded on the Saudi bourse by opening an account with a registered derivatives exchange broker and depositing required collateral.

They will also allow investors to hedge their equity portfolio and traders to gain exposure to the price movement of the underlying stock. They will enable short selling without actually owning the underlying stock and they typically move in tandem with the underlying stock.

The single stock future holders do not have voting rights in a company’s general assembly and they do not receive a company dividend.